This margin calculator will be your best friend if you want to find out an items revenue, assuming you know its cost and your desired profit margin percentage. That's not all though, you can calculate any of the main variables in the sales process - cost of goods sold (how much you paid for the stuff that you sell), profit margin, revenue (how much you sell it for) and profit - from any of the other values. In general, your profit margin determines how healthy your company is - with low margins you're dancing on thin ice and any change for the worse may result in big trouble. High profit margins mean there's a lot of room for errors and bad luck. Keep reading to find out how to find your profit margin and what is the gross margin formula.
We have a few calculators that are similar in nature - you can check out our margin with VAT (or sales tax), margin with a discount or the very similar markup calculator. If you are running a business, you may find VAT calculator and sales tax calculator convenient, too. If you are looking for something else, feel free to visit the finance category to find more helpful calculators.
How to calculate profit margin
- Find out your COGS (cost of goods sold). For example
- Find our your revenue (how much you sell these goods for, for example
- Calculate the gross profit by subtracting the cost from the revenue.
$50 - $30 = $20
- Divide gross profit by revenue:
$20 / $50 = 0.4.
- Express it as percentages:
0.4 * 100 = 40%.
- This is how you calculate profit margin... or simply use our gross margin calculator!
As you can see, margin is a simple percentage calculation, but, as opposed to markup, it's based on revenue, not on Cost of Goods Sold (COGS).
Gross margin formula
The formula for gross margin percentage is as follows:
gross_margin = 100 * profit / revenue (when expressed as a percentage). The profit equation is:
profit = revenue - costs, so an alternative margin formula is:
margin = 100 * (revenue - costs) / revenue.
Now that you know how to calculate profit margin, here's the formula for revenue:
revenue = 100 * profit / margin.
And finally, to calculate how much you can pay for an item, given your margin and revenue (or profit), do:
costs = revenue - margin * revenue / 100
A note on terminology
All the terms (margin, profit margin, gross margin, gross profit margin) are a bit blurry and everyone uses them in slightly different contexts. For example, costs may or may not include expenses other than COGS - usually, they don't. In this calculator, we are using these terms interchangeably and forgive us if they're not in line with some definitions. To us, what's more important is what these terms mean to most people, and for this simple calculation the differences don't really matter. Luckily, it's likely that you already know what you need and how to treat this data. This tool will work as gross margin calculator or a profit margin calculator.
So the difference is completely irrelevant for the purpose of our calculations - it doesn't matter in this case if costs include marketing or transport. Most of the time people come here from Google after having searched for different keywords. In addition to those mentioned before, they searched for profit calculator, profit margin formula, how to calculate profit, gross profit calculator (or just gp calculator) and even sales margin formula.
Margin vs markup
The difference between gross margin and markup is small but important. The former is the ratio of profit to the sale price and the latter is the ratio of profit to the purchase price (Cost of Goods Sold). In layman's terms, profit is also known as either markup or margin when we're dealing with raw numbers, not percentages. It's interesting how some people prefer to calculate the markup, while others think in terms of gross margin. It seems to us that markup is more intuitive, but judging by the number of people who search for markup calculator and margin calculator, the latter is a few times more popular.