How profit margin is calculated
Profit is revenue minus cost. Profit margin expresses that profit as a percentage of revenue: profit margin = (revenue − cost) ÷ revenue × 100.
Markup uses cost as its base instead: markup = (selling price − cost) ÷ cost × 100. A 50% markup is not a 50% margin.
Worked example
If an item sells for $125 and costs $80, profit is $45. The margin is 36% ($45 ÷ $125), while markup is 56.25% ($45 ÷ $80).
Finding a price from a target margin
Divide cost by one minus the target margin. For an $80 cost and a 36% target margin, the selling price is $80 ÷ 0.64 = $125.
Assumptions and edge cases
- Revenue and cost use the same currency and period.
- Negative profit is shown as a loss.
- Margin is undefined when revenue is zero; markup is undefined when cost is zero.
- Target margins must be below 100%.
- Money is rounded to two decimal places for display; calculations retain additional precision.
Last reviewed: September 11, 2026 · See an issue? Request a correction.