Business
The profit margin calculator: margin is not markup
The most expensive mistake in pricing is confusing margin and markup — a 50% markup is only a 33% margin. This guide runs both numbers, shows the gross-versus-net distinction, and helps you price so the margin survives reality.
- Margin vs markup
The same sale produces two different numbers — and one is true profit.
- Gross vs net
Gross margin ignores overhead; net margin is what you keep.
- Costed pricing
Every price should trace back to dated costs, not guesswork.
- The 33% surprise
A 50% markup yields a 33% margin — know which one you quoted.
The formulas
| Metric | Formula | Example |
|---|---|---|
| Markup | (Price − Cost) ÷ Cost | ($150 − $100) ÷ $100 = 50% |
| Margin | (Price − Cost) ÷ Price | ($150 − $100) ÷ $150 = 33% |
| Gross margin | Gross profit ÷ Revenue | Before overhead |
| Net margin | Net profit ÷ Revenue | After everything |
Pricing so the margin survives
- Cost every job fully: materials, labor, time, and a share of overhead.
- Add the margin you need — not the markup you want.
- Test the price against the market before committing.
- Re-cost quarterly; suppliers and time do not stay still.
The hidden cost that kills margins
Scope creep and unpaid extras are the silent margin killers — the "quick change" that eats an hour of billable time.
Put the costed baseline on the calendar with the job, and every scope change becomes a visible margin decision instead of a silent one.
Frequently asked questions
What is the difference between margin and markup?
Markup is profit as a percentage of cost; margin is profit as a percentage of price. A 50% markup equals a 33% margin.
What is a good profit margin?
Net margins of 10–20% are healthy for most small businesses; service businesses often target 20–30% gross. Your honest number depends on your cost structure.
How do I calculate profit margin?
Revenue minus all costs, divided by revenue. Gross margin stops at direct costs; net margin subtracts everything.
Why did my margin shrink this year?
Usually scope creep, supplier price rises, or unbooked time. Re-costing quarterly and tracking jobs against the dated baseline reveals which.
Price by margin, not markup
Free dated costing for every job.