Profit Margin Calculator

Enter what something costs you and what you charge for it. Margin and markup come back together, because they are two different numbers built from the same two figures — and quoting one while calculating the other is the most expensive arithmetic mistake in small business.

What this tool does

Margin is profit as a share of the price. Markup is profit as a share of the cost. On a £100 cost sold at £150 the profit is £50 under either name — but that is a 33.3% margin and a 50% markup, and which word the business uses decides what it charges.

The error runs in one direction, always. A firm that decides it works on 30% and applies 30% to cost is earning a 23% margin, not a 30% one: nearly a quarter of the intended profit missing on every job, and invisible because each individual quote looks perfectly reasonable. Pricing to a target margin means dividing by one minus the margin, which nobody does by instinct.

How it works

  1. Enter cost and price

    Cost is what the work or the goods cost you — materials, subcontractors, the hours you actually paid for. Price is what the customer pays, before any VAT, GST or sales tax, since tax collected for an authority was never yours.

  2. Both percentages come back

    Margin is profit divided by price. Markup is profit divided by cost. They are shown together and labelled, so the number you quote and the number you bank cannot be mistaken for one another.

  3. Price to a margin rather than by a markup

    To earn a 40% margin on a £600 cost, divide by 0.6 and charge £1,000. Adding 40% to the cost gives £840 — a 28.6% margin, and the shortfall that a "we work on 40%" rule creates silently on every job.

  4. A loss is reported as a loss

    When cost exceeds price the result says so, rather than returning a negative percentage that reads at a glance like a discount.

Worked example

A job costing £600 to deliver, priced two ways: a 40% markup on cost, and a price set to earn a 40% margin.

Inputs

Cost
£600.00
Target
40%

Result

Price at 40% markup
£840.00
Margin actually earned
28.57%
Price for a 40% margin
£1,000.00
Difference per job
£160.00

Why it matters: The same "40%" produces two prices £160 apart on a single job. Across a hundred jobs a year that is £16,000 of profit decided entirely by which formula somebody reached for — and nothing about either quote looks wrong when you are holding it on its own.

Best practices

  • Say margin and mean margin. Agree the word inside the business before agreeing the number, because at ordinary rates the two readings differ by roughly a third.
  • Include every cost that moves with the job — subcontractors, materials, processing fees, the hours you pay yourself for. A margin computed on materials alone is not measuring anything.
  • Set price from the target margin rather than from a markup rule of thumb. It is one division, and it removes the entire class of error permanently.
  • Look at margin per job as well as per month. One strong month of high-margin work will happily conceal a standing line of jobs that lose money every time they run.
  • When margin slips, examine costs before prices. Finding the cost that grew is usually cheaper and less damaging than explaining a price rise to everybody at once.

Common mistakes

Applying a markup and calling it a margin

The pair worth memorising is 50 and 33: a 50% markup is a 33.3% margin. A business that intends 50% and marks up 50% is earning a third less than it believes, and the gap never surfaces on any single quote — only in a year-end figure that disappoints for no visible reason.

Leaving your own time out of cost

A sole trader pricing from materials plus a margin is paying themselves out of that margin, so the percentage measures nothing at all. Cost has to include labour at the rate you would have to pay someone else to do the same work.

Discounting without recomputing

A 10% price cut does not cost 10% of the profit. On a 30% margin it removes a third of it and on a 20% margin it removes half, because the discount comes entirely out of margin and none of it out of cost.

Averaging margin across work of different shapes

A blended 35% across products and services usually conceals one of them running near zero. The average is fine in a report and useless as the basis for a pricing decision on either.

Frequently asked questions

What is the difference between margin and markup?

Margin is profit as a percentage of the selling price; markup is profit as a percentage of the cost. A £100 cost sold at £150 is a 33.3% margin and a 50% markup — the same £50, divided by a different number.

How do I price for a specific margin?

Divide the cost by one minus the margin. For a 40% margin on a £600 cost: 600 ÷ 0.6 = £1,000. Adding 40% to cost is a markup and lands at £840, which earns 28.6% and feels correct right up until the year-end.

Is gross margin the same as net margin?

No. Gross margin covers direct costs only; net margin is after overheads and is the one that says whether the business works at all. This calculates margin on whatever costs you enter, so it is gross or net depending entirely on what you put in.

What is a good profit margin?

It varies too much between sectors for a single answer to be useful — a service business with almost no direct costs and a retailer reselling goods live in completely different ranges. The comparison worth making is against your own last quarter, and against the margin you need to cover overheads.

Should margin be worked out before or after tax?

Before. Use figures excluding VAT, GST or sales tax on both sides: tax collected on an authority’s behalf is not revenue, and including it inflates the price, the margin and your sense of how the business is doing.

Does a 10% discount cost 10% of my profit?

It costs far more than that. On a 30% margin, a 10% price cut removes a third of the profit; on a 20% margin it removes half. Discounts come entirely out of margin, which is why "just take 10% off" is a much bigger concession than it sounds.

Turn the answer into an invoice

The result above transfers straight into the invoice generator — dates, amounts and terms already filled in. Free, no account needed.

Open the invoice generator

Sources & further reading

Related

Invoice types

Published · General information, not legal, tax or financial advice.