What is the formula for profit percentage?

There are two common profit percentage formulas. Profit Margin % = (Profit ÷ Revenue) × 100, which measures what percentage of revenue is profit. Markup % = (Profit ÷ Cost) × 100, which measures how much above cost you are selling. On a $100 item sold for $150: Profit = $50, Margin = 33.33%, Markup = 50.00%. Both percentages describe the same $50 profit differently.

What is the difference between profit margin and markup?

Profit margin divides profit by revenue (the selling price); markup divides profit by cost. For the same sale, markup is always higher than margin unless the product is sold at cost. A 50% markup means you added 50% to your cost. A 33.33% margin means 33.33% of your revenue is profit. Retailers commonly think in markup (e.g., "keystone markup" = 100% markup = 50% margin). Finance teams typically report margin because it shows profit as a share of revenue.

What is a good profit margin by industry?

Profit margins vary dramatically by industry. Software and SaaS companies often achieve 60–80% gross margins. Grocery stores operate on 1–3% net margins. Restaurants: 3–9%. Retail: 2–6%. Manufacturing: 8–15%. Healthcare: 5–10%. Professional services: 15–30%. Construction: 2–8%. These are gross or net margin benchmarks — which metric applies depends on what costs are included. Gross margin excludes operating expenses; net margin deducts everything.

How do I calculate the selling price from cost and desired margin?

To hit a target margin, use: Selling Price = Cost ÷ (1 − Margin%). For a 40% margin on a $60 cost item: $60 ÷ (1 − 0.40) = $60 ÷ 0.60 = $100. To hit a target markup, use: Selling Price = Cost × (1 + Markup%). For a 50% markup on $60: $60 × 1.50 = $90. Notice that a 50% markup produces a 33.3% margin, not 50% — a common source of confusion in pricing.

What is the cost-to-revenue ratio?

The cost-to-revenue ratio (also called cost ratio or expense ratio) is Cost ÷ Revenue × 100. It tells you what percentage of your revenue is consumed by cost of goods sold. A ratio of 66.7% means $0.667 of every revenue dollar goes to cost, leaving $0.333 as gross profit (a 33.3% margin). Lower is better — a 50% cost ratio leaves more room for operating expenses and profit than an 80% cost ratio.

How do taxes affect profit percentage?

The profit percentage calculated here is gross profit margin — it does not account for operating expenses, overhead, or taxes. To get to net profit margin, subtract operating expenses (rent, labor, marketing, G&A) and then income taxes from gross profit. A business with a 40% gross margin might have a 10–15% net margin after all expenses. For a commission-based business, the commission calculator shows after-tax commission earned at your tax bracket.

Can I have a negative profit percentage?

Yes — when revenue is less than cost, gross profit is negative and so is the margin. This is common for businesses that are scaling rapidly (burning cash to grow), selling below cost to acquire customers, or experiencing operational problems. A negative margin is a loss. Sustained losses require either a path to profitability (higher prices, lower costs, increased volume) or external funding to continue operations.

Profit Percentage Calculator

Calculates gross profit, profit margin %, markup %, and cost-to-revenue ratio from any cost and revenue pair.

How to Use This Profit Percentage Calculator

This profit percentage calculator instantly converts any cost and revenue pair into gross profit, margin, markup, and cost ratio. Enter the cost (what you paid or spent to produce the item or service) and the revenue (what you sold it for). The calculator instantly returns gross profit in dollars, profit margin percentage, markup percentage, and cost-to-revenue ratio. All four outputs update as you type — no submit button needed. Use the Share button to save your inputs or share them with a colleague.

If you are setting prices for a product and want to work backwards from a target margin to a selling price, the markup calculator lets you enter your cost and desired markup percentage to compute the sale price directly.

How Profit Percentage Is Calculated

Four metrics are calculated from cost and revenue:

Gross Profit = Revenue − Cost
Profit Margin % = (Gross Profit ÷ Revenue) × 100
Markup % = (Gross Profit ÷ Cost) × 100
Cost-to-Revenue Ratio = (Cost ÷ Revenue) × 100

Example: Cost = $100, Revenue = $150. Gross Profit = $50. Margin = ($50 ÷ $150) × 100 = 33.33%. Markup = ($50 ÷ $100) × 100 = 50.00%. Cost ratio = ($100 ÷ $150) × 100 = 66.67%.

AdvertisementResponsive Ad

Profit Margin vs. Markup: Which Should You Use?

Margin and markup describe the same dollar profit from different angles. The right one to use depends on your context:

Use margin when reporting financial results, comparing performance to industry benchmarks, or communicating with investors. Finance and accounting use margin as the standard metric because it shows profit as a share of top-line revenue.
Use markup when pricing products, quoting jobs, or setting wholesale-to-retail prices. If you need a 50% margin, use markup of 100% on cost (not 50%). Many pricing errors come from confusing the two.

The key relationship: Margin = Markup ÷ (1 + Markup) and Markup = Margin ÷ (1 − Margin). A 50% markup equals a 33.33% margin. A 50% margin requires a 100% markup. Getting this backwards can cost significant money.

Profit Margin Benchmarks by Industry

Knowing your margin means little without context. Here are gross margin ranges by industry:

Software / SaaS: 60–80%
Professional services: 30–50%
Healthcare / pharma: 40–70%
Manufacturing: 20–40%
Construction / contracting: 15–25%
Retail (general): 25–50%
Grocery / food retail: 25–35% gross, 1–3% net
Restaurants: 60–70% gross (on food only), 3–9% net

Gross margin is the metric this calculator computes. Net margin is lower because it also subtracts operating expenses (labor, rent, marketing, G&A). Compare your gross margin to industry peers; then work on the operating expense side to improve net margin.

How to Improve Your Profit Margin

There are only two levers for improving gross profit margin: increase revenue relative to cost, or decrease cost relative to revenue. In practice, this means:

Raise prices — even a 5% price increase on a 30% margin business improves gross profit by ~17% if volume holds
Reduce cost of goods sold — negotiate better supplier pricing, buy in larger volume, substitute lower-cost materials
Mix shift — sell more high-margin products and fewer low-margin ones
Reduce waste and returns — defects, spoilage, and returns increase effective COGS
Eliminate underperforming SKUs — products with negative or near-zero margin drag down the average

AdvertisementResponsive Ad

Profit Percentage for Freelancers and Service Businesses

For service businesses, “cost” is typically your time cost (hours × your effective hourly rate or salary) plus any materials or subcontractors. If you earn $75/hour and bill at $150/hour, your gross margin is 50% — but you still have to pay taxes, insurance, software tools, and other overhead from that margin before arriving at net income.

For freelancers and sales professionals, also see the commission calculator, which shows your after-tax earnings on commission-based income.

Common Profit Percentage Mistakes

The most frequent error is confusing margin with markup. Applying a 50% “markup” when you actually need a 50% margin will leave you with only 33.33% margin instead — a significant shortfall at scale. Other common mistakes:

Forgetting to include all costs (shipping, packaging, payment processing fees are easy to miss)
Calculating margin on the wrong revenue figure (gross vs. net of returns and discounts)
Ignoring volume effects — a 10% price discount may require 25%+ more unit sales to maintain the same gross profit
Comparing gross margin to a competitor’s net margin (not apples to apples)

Financial Disclaimer

This calculator is for informational purposes only. Results represent gross profit metrics only and do not account for operating expenses, taxes, or other deductions. Industry benchmark ranges are approximate and vary by company size, geography, and business model. Consult a licensed accountant or financial advisor for advice specific to your business.