Profit: The dollar difference between what you sell a product or service for and what it costs you. This is gross profit — before operating expenses, taxes, and overhead.
Gross Margin: Profit expressed as a percentage of revenue (selling price). A 50% margin means half of every revenue dollar is gross profit. This is the standard metric used in financial reporting.
Markup: Profit expressed as a percentage of cost. A 100% markup means you doubled the cost to set the price. Markup is commonly used in retail pricing and cost-plus contracts.
Key difference: Margin and markup use the same profit dollars but different denominators — margin divides by revenue, markup divides by cost. A 50% margin equals a 100% markup.
How This Calculator Works
You enter the cost of goods and the selling price (revenue). The tool subtracts cost from revenue to get profit, then divides profit by revenue for gross margin and by cost for markup. It assumes a single unit or batch — multiply by volume for total figures. Operating expenses and overhead are not included.
Quick Questions
What is a good gross margin?
It varies widely by industry. Software companies often see 70-80%+ gross margins, while grocery retail typically runs 25-35%. Manufacturing is usually 30-50%. Compare your margin to industry benchmarks rather than a universal number.
Why do margin and markup give different percentages?
They measure the same profit dollars against different bases. Margin uses the selling price as the base (profit ÷ revenue), while markup uses the cost (profit ÷ cost). Because cost is smaller than revenue, markup is always a higher percentage than margin for the same transaction.
Does this include overhead and operating costs?
No. This calculator computes gross margin — the profit after only direct costs (cost of goods sold). To find net margin, you'd need to subtract operating expenses, rent, salaries, marketing, and taxes from gross profit.
How do I convert between margin and markup?
Margin = Markup ÷ (1 + Markup). Markup = Margin ÷ (1 − Margin). For example, a 40% markup equals a 28.6% margin, and a 30% margin equals a 42.9% markup.