Profit margin = (revenue − cost) ÷ revenue × 100. It answers: 'of every dollar I collect, how much do I keep?'
Margin vs markup
- Margin divides by revenue: ($100 − $60) ÷ $100 = 40%
- Markup divides by cost: ($100 − $60) ÷ $60 = 66.7%
- Convert: margin = markup ÷ (1 + markup). So 100% markup = 50% margin.
Pricing example
Cost $25, want 40% margin → price = $25 ÷ (1 − 0.40) = $41.67.
Benchmarks
Healthy margins vary wildly: ~2% for groceries, 10–20% for many small businesses, 70%+ for software. Compare within your industry.
Run the numbers with our Profit Margin Calculator and Markup Calculator.