Calculate your business profit margins, markup percentages, and profitability metrics. Essential tool for pricing decisions and financial analysis.
Profit Margin = ((Selling Price - Cost Price) / Selling Price) × 100
Source: Financial Management: Theory and Practice (Brigham & Ehrhardt, 2016)
Markup = ((Selling Price - Cost Price) / Cost Price) × 100
Source: Standard business accounting practices
Scenario: Small retail business selling handmade products
Analysis: A 33.33% profit margin is healthy for retail, providing good coverage for unexpected costs and business growth.
Profit margin is calculated based on selling price (profit ÷ selling price), while markup is calculated based on cost price (profit ÷ cost price). Margin shows what percentage of your selling price is profit, while markup shows how much you're adding to your cost.
Good profit margins vary by industry. Generally, 5% is considered low, 10% is acceptable, and 20%+ is excellent. Retail typically sees 2-6%, restaurants 3-9%, and software companies often achieve 20%+. Research your specific industry benchmarks.
Yes, include all direct costs: materials, labor, manufacturing, shipping, and a portion of overhead costs. This gives you a true cost basis for accurate profit margin calculations and pricing decisions.
Review profit margins monthly or quarterly, and immediately when costs change. Regular monitoring helps you maintain profitability and adjust pricing strategies based on market conditions and cost fluctuations.
Yes, negative profit margins occur when selling price is less than cost price, resulting in a loss. This might be acceptable for loss leaders, market penetration, or clearing inventory, but shouldn't be sustained long-term.
Financial Calculation Tool: This profit margin calculator is provided for educational and informational purposes only. The calculations are based on industry-standard financial formulas and should not be considered as professional financial advice.
Accuracy Notice: While we use precise calculation methods and strive for accuracy, please verify all calculations independently. Business decisions should be made in consultation with qualified financial professionals, accountants, or business advisors.
Risk Warning: Business profitability depends on many factors beyond simple margin calculations, including market conditions, competition, economic factors, and operational efficiency. Consider all business risks when making pricing and investment decisions.
Data Sources: Formulas are based on standard financial management practices as referenced in academic and professional literature. Industry benchmarks may vary and should be researched for your specific sector.