Calculator
Enter all monetary amounts in the same currency. The calculator returns ratios and amounts in that same basis.
Method and inputs
Formula: gross margin = (price - cost) / price; markup = (price - cost) / cost
Inputs: Selling price and direct cost per item, order or service.
Worked example
At a $100 selling price and $60 direct cost, gross profit is $40, gross margin is 40% and markup is 66.67%.
Margin and markup side by side
| Markup on cost | Gross margin on price | Price for a $60 cost |
|---|---|---|
| 25% | 20% | $75 |
| 50% | 33.3% | $90 |
| 67% | 40% | $100 |
| 100% | 50% | $120 |
| 150% | 60% | $150 |
| 200% | 66.7% | $180 |
Margin = markup / (1 + markup) and markup = margin / (1 − margin). A 50% markup is only a 33.3% margin, and a 100% markup (doubling the cost) is a 50% margin. To hit a target margin, divide cost by (1 − margin): a $60 item needs a $100 price for a 40% margin, not $84, which is a 40% markup.
Common mistakes
- Quoting markup when a buyer or investor asks for margin; the markup figure always looks larger.
- Including VAT or sales tax in the price but not in the cost, which overstates margin.
Important limits
Gross margin is not net profit. Operating expenses, taxes, returns, discounts, financing and overhead are not included unless they are included in your cost input.