Gross margin is gross profit as a share of the selling price: sell for $100 what cost $60 and the gross margin is 40%. Enter cost and price for the margin and the equivalent markup, or start from a target margin to get the price. It is the first measure of whether a product or service can carry the rest of the business.
Track gross margin by product and over time. Suppliers raising prices, discounts creeping in and a shift towards cheaper products all show up here first.
Profit Margin and Markup Calculator
Margin and markup describe the same gap between cost and price from two different sides, and mixing them up is one of the most expensive pricing mistakes a small business can make. Margin is profit as a share of the selling price; markup is profit as a share of the cost. On a product that costs $60 and sells for $100, the profit is $40, the gross margin is 40% and the markup is 66.7%.
The margin and markup calculator works in three directions. Give it cost and price and it returns both percentages. Give it cost and a target margin and it returns the price you need to charge: $60 at a 40% margin is $60 ÷ (1 − 0.40) = $100. Give it cost and a markup and it returns the price and the margin that markup actually delivers: a 50% markup on $60 is $90, which is only a 33.3% margin.
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Frequently Asked Questions
What is the gross margin formula?
(selling price − cost) ÷ selling price × 100. A $60 cost sold at $100 is a 40% margin.
How is gross margin different from markup?
Margin is measured against price, markup against cost. The same $40 profit is a 40% margin and a 66.7% markup.
What gross margin do I need?
Enough to cover operating expenses and leave a net profit. Divide your operating expenses by revenue and add the net margin you want: that is the gross margin the business needs.
