What is profit margin?
Profit margin tells you how much of every sale you keep as profit. It is calculated on the selling price: if you sell a product for $30 that cost you $12, your profit is $18 and your margin is 18 ÷ 30 = 60%. Margin is the number most businesses, investors and accountants use to compare products and companies.
Profit margin formulas
- Margin % = (price − cost) ÷ price × 100
- Price for a target margin = cost ÷ (1 − margin) — for a 40% margin on a $12 cost: 12 ÷ 0.60 = $20.00
- Maximum cost for a target margin = price × (1 − margin) — to keep a 40% margin on a $30 product you can pay up to $18.00
Margin vs markup
Markup is calculated on the cost, margin on the price. The same $18 profit on a $12 item is a 150% markup but only a 60% margin. Mixing them up is one of the most common pricing mistakes: adding a “40% markup” to a $12 cost gives $16.80 — just a 28.6% margin.
| Markup | Margin |
|---|---|
| 25% | 20% |
| 50% | 33.3% |
| 100% | 50% |
| 150% | 60% |
| 200% | 66.7% |
| 300% | 75% |
Your real margin after selling fees
A 50% margin on paper can drop to 30% once Amazon, eBay or Etsy take their cut. Pick your platform in step 2 and the calculator shows your real margin after fees, so you price for the profit you actually keep.
What is a good profit margin?
It depends on the business. Retail and ecommerce products often target 30–50% gross margin, handmade and digital products can reach 60–90%, and groceries or electronics run on thin margins of 10–20%. The key is that the margin covers your marketing, returns and overheads and still leaves profit.
Three questions, three modes
- Cost + price: “I buy at 12 and sell at 30 — what is my margin?” → profit 18, margin 60%.
- Cost + margin → price: “I want a 40% margin on something that costs 12” → price 20.
- Price + margin → max cost: “The market price is 30 and I need 40% margin” → I can pay at most 18.
The formulas
Margin = (price − cost) ÷ price
Price for a margin = cost ÷ (1 − margin)
Note that a 40% margin needs price = 12 ÷ 0.6 = 20, not 12 × 1.4 = 16.80 — that would be a 40% markup, which gives only a 28.6% margin.
Include platform fees
Choose a platform (or enter your own fee %) and the margin is calculated after fees, so a 40% margin on Daraz or Amazon is really 40% in your pocket.
Round to a selling price
Round prices to .99 or to the nearest 5 or 10 — the calculator keeps your margin at or above target after rounding.
Margin vs markup confusing? See the markup calculator.