Updated on 29 September 2026 by the Proposal Expert editorial team
Profit, margin and markup from cost and price, or the price that hits your target margin
Profit margin is profit (selling price minus cost) divided by the selling price, and markup is the same profit divided by the cost. This margin calculator works both ways. Enter your cost and selling price to see the profit, the margin and the markup. Or enter your cost with a target margin or markup, and it works out the selling price to put in your quote. Always use prices before VAT or sales tax.
Profit = price − cost. Margin % = profit ÷ price × 100. Markup % = profit ÷ cost × 100. Price from margin = cost ÷ (1 − margin ÷ 100).
Margin tells you what share of the selling price is profit, and markup tells you how much you added on top of the cost. Because margin divides by the larger number, it is always the lower percentage for the same price. To price from a target margin, divide the cost by 1 minus the margin, so a 25% margin on a cost of $300 means $300 ÷ 0.75 = $400. To price from a markup, multiply instead: cost × (1 + markup ÷ 100).
An office furniture supplier buys a standing desk for $750 and quotes it to a business client at $1,200, both before tax. The profit is $1,200 minus $750. Divide that profit by the selling price and you get the margin, and divide it by the cost and you get the markup. The table shows the profit, the margin and the markup, so you can see at a glance how far apart the two percentages are.
| Cost | $750.00 |
|---|---|
| Selling price | $1,200.00 |
| Profit | $450.00 |
| Margin | 37.5% |
| Markup | 60% |
Margin and markup describe the same profit from two sides. Margin compares it with the selling price. The SBA defines contribution margin the same way, as (sale price per unit − variable cost per unit) ÷ sale price per unit. Markup compares the profit with the cost. The classic mistake is to add 30% to the cost and assume you have a 30% margin. On a cost of $100 that gives a price of $130, which is a margin of only 23.1%. A true 30% margin needs a price of $100 ÷ 0.70 = $142.86. To convert between the two, use markup = margin ÷ (100 − margin) × 100 and margin = markup ÷ (100 + markup) × 100. These pairs come up most often:
Gross margin looks only at the direct cost of what you sell: goods bought for resale, materials and the labour that goes straight into the job. The formula is gross margin = (revenue − cost of goods sold) ÷ revenue × 100. Net margin goes further and also subtracts your overheads, such as rent, insurance, software, vehicles and the hours you cannot bill. What is left is net profit, and net margin = net profit ÷ revenue × 100. A healthy gross margin can still hide a loss if your overheads are too high. The calculator uses whatever cost you enter. Enter only the purchase price and you get the gross margin on that item. Add a fair share of your overheads to the cost and the result moves closer to your net margin, which is the figure that decides whether a job is worth taking.
Start from the full cost of the job, not from the figure you think the client will accept. Add up materials, subcontractors and your own hours at cost, then divide the total by 1 minus the margin you need. Say a job costs $2,000 and you want a 25% margin. The price is $2,000 ÷ 0.75 = $2,666.67 before tax. If you round it down to $2,650, check the margin again, because it is now 24.5%. A few habits protect your margin on every quote:
No. Work out margin and markup on prices before tax, because you pass the tax on and it adds nothing to your profit. In the UK, a VAT-registered business must charge VAT on the goods and services it sells unless they are exempt. gov.uk also says you can reclaim VAT on items you buy for use in your business if you are VAT registered, so VAT belongs in neither your cost nor your price. In the US, the SBA explains that a business with a physical or economic presence in a state, called a nexus, may have to collect state and local sales tax from its customers there, and that not every state and locality has a sales tax. Either way, add the tax after you have set your price. The most common error is comparing a price including tax with a cost excluding tax. An item that costs £700 and sells for £1,000 before VAT has a 30% margin. Put £1,200 including 20% VAT against £700 and the margin seems to be almost 42%. If you are not VAT registered, you cannot reclaim the VAT you pay on materials, so include it in your cost.
Your margin is always worked out before tax, but what the client sees depends on who the client is. VAT-registered business clients reclaim the VAT you charge, so UK quotes to businesses usually show the net price per line, then the VAT and the total. Private clients pay the full amount, so a quote to a consumer usually leads with the price including VAT. In the US, state clearly whether sales tax is included or will be added, and at which rate. Add the tax only once the net price from your target margin is fixed, otherwise you end up counting the tax as profit. Keep your cost, margin and markup out of the quote, because they are for you and not for the client. To add VAT to the final price or take it off, use the VAT calculator.
An industry average says little about your own business. What matters is whether your margin covers your overheads and then leaves the profit you want. The SBA's break-even formula makes this concrete: break-even point in sales dollars = fixed costs ÷ contribution margin. Turn it around and you get the margin you need. With $40,000 of fixed costs a year and $160,000 of expected sales, you need a margin of at least 25% just to break even. To make a further $16,000 in profit, you need ($40,000 + $16,000) ÷ $160,000 = 35%. That is the target margin to enter in the calculator when you price each quote. Check it again every year, because when your overheads go up, the margin you need goes up with them.
The final step is to put this price into a quote. Enter each line at its price before tax and check that the subtotal still gives the margin you worked out. For consumers, make the total including tax easy to find. Proposal Expert's price table calculates VAT and totals, including VAT per line, and the free plan allows 3 quotes and 3 digital signatures a month.
Divide the cost by 0.70. A cost of $70 gives a price of $100, and the $30 profit is exactly 30% of the price. Adding 30% to the cost would give $91, which is a margin of only 23.1%.
No. Both use the same profit, but margin divides it by the selling price and markup divides it by the cost. A 50% margin equals a 100% markup, so pricing at a 50% markup when you meant a 50% margin gives you half the profit you planned.
Yes. Any price above twice the cost is a markup of more than 100%. Margin can never reach 100%, because that would mean the cost is zero. Selling at three times the cost is a 200% markup and a 66.7% margin.
Gross profit is an amount: revenue minus the cost of goods sold. Gross margin is that amount as a percentage of revenue. For a single sale, the calculator shows both, the profit in money and the margin in per cent.
After. What counts is the price the client actually pays. A discount comes entirely out of your profit, so your margin falls faster than the discount rate suggests.