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Profit margin calculator
Work out profit, margin and markup from your cost and selling price, or enter a target margin to find the price to charge. It can take 20% VAT out first, so you see profit on the money you actually keep.
Worked example.
A York candle maker spends £7.20 making each candle and sells it for £24.00 including VAT.
- Mode
- Cost and selling price
- Cost price
- £7.20
- Selling price
- £24.00
- Price includes 20% VAT
- Yes
With VAT removed the price is £20.00, so each candle makes £12.80 profit: a margin of 64.0% and a markup of 177.8%. For a 70% margin instead, target margin mode gives a price of £24.00 before VAT, or £28.80 including VAT.
How it works.
The maths and the rules behind the tool, so you can check it yourself.
Profit is what is left of the selling price once you take off what the product cost you. Margin shows that profit as a share of the selling price, and markup shows it as a share of the cost. When you make a profit, markup is always the bigger number.
If you are VAT registered and your price includes 20% VAT, switch on the VAT option. The tool divides the price by 1.2 to remove the VAT before working out profit, because that part of the price goes to HMRC.
In target margin mode, enter your cost and the margin you want. The tool works out the selling price before VAT, and the price including VAT if you need it. Money is shown to 2 decimal places and percentages to 1.
If you are planning an online shop, Infinity builds Shopify websites for £1,000, with the final price confirmed after a short call.
Tips.
Small changes that make the numbers more useful.
- Include every cost per unit: the product, packaging, labels and any delivery you pay for. Leave one out and your margin looks better than it really is.
- Do not mix up margin and markup. A 50% markup on a £10.00 cost gives a £15.00 price, which is only a 33.3% margin.
- If you sell online, take off platform and payment fees too. The Shopify fees calculator shows what those add up to each month.
- Set prices from the margin you need, not from what others charge. Work out what each sale must cover in ads, overheads and your time, then use target margin mode to find the price.
- Check your margin after discounts. A discount comes straight off your profit while your cost stays the same, so a thin-margin product can quickly sell at a loss.
Questions, answered.
What is the difference between margin and markup?
Both start from the same profit figure. Margin divides profit by the selling price, while markup divides it by the cost. A product that costs £10.00 and sells for £15.00 has a 33.3% margin and a 50.0% markup. Margin stays below 100% as long as the product costs something, but markup has no upper limit.
How do I calculate profit margin?
Take the cost away from the selling price to get profit, then divide the profit by the selling price and multiply by 100. A £40.00 price and a £25.00 cost gives £15.00 profit, which is a 37.5% margin. If your price includes VAT, remove the VAT first.
What is a good profit margin?
It depends on your industry, your prices and your other costs. Each sale needs enough margin to cover advertising, fees, returns and overheads and still leave a profit. Rather than chase a set number, work out what each sale has to cover and set your target margin from that.
Should I work out margin with or without VAT?
Without VAT, if you are VAT registered. The VAT in your price is collected for HMRC, so it is not part of your income. Divide a price that includes 20% VAT by 1.2 to get the price before VAT, then work out your margin on that.
How do I set a price from a target margin?
Divide your cost by 1 minus the margin as a decimal. For a 40% margin on a £12.00 cost, that is £12.00 ÷ 0.6 = £20.00 before VAT. Add 20% VAT and the price becomes £24.00.
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