Profit Margin Calculator
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Margin and markup calculator
Gross and net profit margin calculator
Handmade product pricing calculator
How to Calculate Profit Margin
Profit margin shows how much of each sales dollar you keep as profit. A 25% margin means you keep $0.25 from every $1 of sales after the costs included in the calculation.
Profit margin = (Selling price − Cost) ÷ Selling price × 100
- Subtract the cost from the selling price to get your profit.
- Divide the profit by the selling price.
- Multiply by 100 to turn the result into a percentage.
Example: a product costs $20 to make and sells for $50. The profit is $30, and $30 ÷ $50 = 0.6, so the profit margin is 60%.
Gross vs. Operating vs. Net Profit Margin
All three margins divide a profit figure by revenue. The difference is which costs you subtract first, so each one answers a different question.
| Margin | Formula | What it tells you |
|---|---|---|
| Gross | (Revenue − COGS) ÷ Revenue | Whether your products are priced well against the cost of making them |
| Operating | (Gross profit − Operating expenses) ÷ Revenue | Whether the day-to-day business makes money |
| Net | (Operating profit − Interest and taxes) ÷ Revenue | How much of your revenue is left at the end |
Example: a shop has $100,000 in revenue, $40,000 in cost of goods sold, $35,000 in operating expenses, and $5,000 in interest and taxes. Its gross margin is 60%, its operating margin is 25%, and its net margin is 20%.
Margin vs. Markup
Margin and markup use the same profit but compare it to different numbers. Margin divides profit by the selling price. Markup divides profit by the cost. That is why markup is always the higher percentage on a profitable sale.
Markup = (Selling price − Cost) ÷ Cost × 100
On a $50 sale with a $20 cost, the margin is 60% and the markup is 150%. Mixing them up is an expensive mistake. If you add 40% to a $20 cost, you charge $28 and earn a 28.57% margin, not a 40% margin.
How to Calculate Selling Price From a Target Margin
To reach a target margin, divide the cost by one minus the margin. Write the margin as a decimal, so 30% becomes 0.30.
Selling price = Cost ÷ (1 − Target margin)
For a 70% profit margin on a $30 cost, divide $30 by 0.30 to get a $100 selling price. The table shows the markup and price needed on a $100 cost.
| Target margin | Markup needed | Price on $100 cost | Profit |
|---|---|---|---|
| 10% | 11.11% | $111.11 | $11.11 |
| 20% | 25% | $125.00 | $25.00 |
| 25% | 33.33% | $133.33 | $33.33 |
| 30% | 42.86% | $142.86 | $42.86 |
| 40% | 66.67% | $166.67 | $66.67 |
| 50% | 100% | $200.00 | $100.00 |
| 60% | 150% | $250.00 | $150.00 |
| 70% | 233.33% | $333.33 | $233.33 |
A “30% margin on $100” can mean two things. If $100 is your cost, you need to charge $142.86. If $100 is your selling price, your profit is $30 and your cost can be no more than $70.
What Is a Good Profit Margin?
A good profit margin depends on your industry, business model, and size. As a rule of thumb, many small business owners treat a 5% net margin as low, 10% as healthy, and 20% as strong. Use that as a starting point, then compare yourself with businesses like yours.
| US industry | Gross margin | Net margin |
|---|---|---|
| Software (system and application) | 71.72% | 25.49% |
| Apparel | 56.88% | 3.85% |
| Household products | 51.04% | 11.68% |
| Specialty retail | 35.30% | 5.19% |
| General retail | 33.18% | 5.61% |
| Restaurants and dining | 32.24% | 9.37% |
| Furniture and home furnishings | 30.28% | 1.10% |
| Grocery and food retail | 26.31% | 1.32% |
| All industries | 37.76% | 9.74% |
Source: Aswath Damodaran, NYU Stern, Margins by Sector (US), January 2026 data. These figures cover publicly traded US companies, so a small shop’s margins can look quite different.
Notice how apparel has a high gross margin and a low net margin. Strong product pricing doesn’t help much if rent, staff, marketing, and other overhead take most of it, so track both numbers.
How to Price a Handmade or Custom Product
Small sellers often overstate their margin because they count materials and forget everything else. A real product cost includes your time, machine time, packaging, and the fees you pay when an item sells. The Handmade Pricing tab adds these up for you.
Here is a worked example for a set of personalized slate coasters. The numbers are illustrative, so replace them with your own.
| Cost per set | How it’s calculated | Amount |
|---|---|---|
| Materials | Slate blanks and cork backing | $4.00 |
| Machine time | 12 minutes at $6 per hour | $1.20 |
| Labor | 15 minutes at $20 per hour | $5.00 |
| Packaging | Box and insert | $1.00 |
| Cost to make | $11.20 |
With a 40% target margin, a 9.5% selling fee, and $0.45 in fixed fees, the price is ($11.20 + $0.45) ÷ (1 − 0.095 − 0.40) = $23.07. At that price, you pay $2.64 in fees and keep $9.23 in profit. Selling fees come out of the sale price, so a basic cost-plus calculation would leave you short of your target.
If you make products in-house with a laser engraver or UV printer, your machine rate should cover electricity, consumables, maintenance, and a share of the purchase price. For more on setting prices, read our guide on how to price handmade items.
The default fee settings approximate a US Etsy sale: a 6.5% transaction fee, 3% + $0.25 payment processing, and a $0.20 listing fee. Actual fees vary with your location, shipping, and promotions, so check Etsy’s current fee policy or your own platform’s rates.
How to Improve Your Profit Margin
- Raise prices on your best sellers. Test a small increase on products with steady demand and watch whether sales hold.
- Cut material waste. Better layouts and fewer failed test runs lower your cost per item without changing what customers see.
- Offer personalization. Names, dates, and custom designs give customers a reason to pay more than they would for a standard item.
- Bundle products. Sets can raise your average order value and spread packaging and fee costs across several items.
- Review your sales channels. Compare your margin on each marketplace, your own store, and in-person sales, since fees differ on each one.
- Batch your production. Making similar items together reduces setup time, which lowers your labor cost per item.
Frequently Asked Questions
What is the formula for profit margin?
Profit margin = (Selling price − Cost) ÷ Selling price × 100. For example, a $50 sale with a $20 cost has a $30 profit and a 60% margin.
What is the difference between gross and net profit margin?
Gross margin subtracts only the cost of goods sold from revenue. Net margin subtracts all expenses, including operating costs, interest, and taxes, so it is usually much lower.
Is a 50% markup the same as a 50% margin?
No. A 50% markup gives you a 33.33% margin. To earn a 50% margin, you need a 100% markup, which means charging double your cost.
Can a profit margin be more than 100%?
No. Profit can’t exceed the selling price when your costs are above zero, so margin stays under 100%. Markup has no such limit and can go well past 100%.
What does a negative profit margin mean?
A negative margin means your costs are higher than your revenue, so you lose money on the sale or the period you measured.
What costs should I include when calculating profit margin?
For gross margin on a product, include materials, direct labor, machine time, and packaging. For net margin, also include selling fees, shipping you pay for, marketing, rent, software, insurance, interest, and taxes.
How do discounts affect profit margin?
A discount comes straight out of your profit. A $50 product with a $20 cost has a 60% margin. At 20% off, it sells for $40 and the margin drops to 50%.
How do I calculate profit margin in Excel?
Put the cost in cell A2 and the selling price in B2, then enter =(B2-A2)/B2 in another cell and format it as a percentage.
Keep Reading
- How to Price Handmade Items
- 20 Profitable Crafts to Make and Sell
- How to Start a Craft Business
- How to Start a Laser Engraving Business
- Best Etsy Shop Ideas
This calculator provides estimates for general planning and is not financial, tax, or accounting advice.