Formula
Profit = price − costMargin = profit ÷ priceMarkup = profit ÷ cost How it works
Profit margin tells you what share of each sale you keep as profit. If you sell something for $100 that cost you $60, you keep $40 — a 40% margin. Because margin is measured against the selling price, it can never exceed 100%.
Margin and markup describe the same profit from different starting points. Markup compares profit with cost (the $40 profit is 66.7% of the $60 cost), so it is always the larger number. Mixing the two up is a common pricing mistake: adding a 40% markup gives only a 28.6% margin.
Entering cost of goods sold gives gross margin. To find net margin, include every expense — rent, salaries, marketing, taxes — in the cost figure. Typical gross margins vary widely: grocery stores run on thin margins, while software companies often exceed 70%.
Frequently asked questions
How do I set a price for a target margin?
Divide cost by (1 − target margin). For a 40% margin on a $60 cost: $60 ÷ 0.6 = $100.
What is a good profit margin?
It depends on the industry. A 10% net margin is often considered healthy for a small business, but retail and restaurants frequently run lower and software or consulting higher.