What is profit margin?
Profit margin shows how much of each unit of revenue remains as profit after cost. It expresses profit as a percentage of revenue, making it easier to compare performance across products or periods.
Profit margin formula
Revenue must be non-zero for profit margin to be defined.
How to calculate profit
Subtract total cost from revenue. Revenue of 100 and cost of 60 produce profit of 40. If cost exceeds revenue, profit is negative and represents a loss.
Profit margin vs markup
Margin divides profit by revenue, while markup divides profit by cost. Because they use different bases, the percentages are not interchangeable. A 50% markup produces a 33.33% margin.
How to calculate selling price from desired margin
Divide cost by one minus the desired margin as a decimal. For cost of 60 and desired margin of 40%, divide 60 by 0.60 to get a selling price of 100.
How to calculate price from markup
Multiply cost by one plus the markup as a decimal. Cost of 60 with a 50% markup produces a selling price of 90.
Worked examples
| Known values | Selling price | Profit | Margin | Markup |
|---|---|---|---|---|
| Revenue 100, cost 60 | 100 | 40 | 40% | 66.67% |
| Cost 60, margin 40% | 100 | 40 | 40% | 66.67% |
| Cost 60, markup 50% | 90 | 30 | 33.33% | 50% |
Frequently asked questions
How do I calculate profit margin?
Subtract cost from revenue to find profit, divide profit by revenue, then multiply by 100.
What is the difference between margin and markup?
Profit margin measures profit as a percentage of revenue. Markup measures profit as a percentage of cost.
How do I calculate selling price from cost and margin?
Divide cost by 1 minus the desired margin written as a decimal. A desired margin must be below 100%.
How do I calculate markup?
Subtract cost from selling price to find profit, divide that profit by cost, then multiply by 100.
Can profit margin be over 100%?
With non-negative revenue and cost, profit cannot exceed revenue, so profit margin cannot exceed 100%. Other accounting contexts or negative costs require separate interpretation.
What is a good profit margin?
There is no universal healthy margin. Appropriate margins vary substantially by industry, business model, overhead, competitive conditions, growth stage, and risk.
Why is a 50% markup not the same as a 50% margin?
A 50% markup on a cost of 100 produces a price of 150 and profit of 50. That profit is 33.33% of revenue, so the margin is 33.33%, not 50%.