What profit margin means for your business
Profit margin is the percentage of your selling price that you keep as profit after covering the cost of the item itself. It's the single number that tells a retailer, e-commerce seller, freelancer, or manufacturer whether a price is actually worth charging — a product can look busy on a sales report and still lose money if the margin behind it is too thin. Cash-on-delivery sellers in particular need to watch this closely, since courier and return-handling costs quietly erode margin in a way that isn't visible from the sale price alone.
This calculator separates two related but different questions. Gross margin looks only at cost of goods versus selling price. Net margin goes further and subtracts everything else it costs you to make the sale — marketplace commission, payment processing, shipping, packaging, and advertising. The Net Margin After Fees tab exists because gross margin alone routinely overstates what a seller actually keeps, sometimes by 10-20 percentage points once real selling costs are included.
Worked examples
1. Basic margin and markup
A product costs $40 and sells for $60. Gross profit is $20. Margin is $20 / $60 = 33.3%. Markup is $20 / $40 = 50%. The same $20 profit produces two different percentages depending on which base you measure against — this is the most common source of pricing confusion for new sellers.
2. Marketplace fee-adjusted margin
Same $40 cost, $60 price, sold through a marketplace charging an 8% platform fee and a 2.9% payment gateway fee, plus $4 shipping and $1.50 packaging. Fees take $6.54, and shipping and packaging take $5.50 more. Net profit drops to $60 − $40 − $6.54 − $5.50 = $7.96, a net margin of about 13.3% — less than half the 33.3% gross margin the basic calculation suggested.
3. Break-even volume
A seller has $2,000 in fixed monthly costs, a $12 variable cost per unit, and sells at $20. Break-even units = $2,000 / ($20 − $12) = 250 units per month before any profit begins.
Margin vs. markup: what's the difference?
Margin is measured against the selling price; markup is measured against the cost price. They describe the same dollar amount of profit from two different reference points, and markup is always the larger percentage of the two (above 0% profit).
| Markup % | Equivalent Margin % |
|---|---|
| 10% | 9.1% |
| 25% | 20.0% |
| 50% | 33.3% |
| 100% | 50.0% |
| 200% | 66.7% |
Typical margin benchmarks by industry
| Industry | Typical gross margin range |
|---|---|
| General retail | 20% – 50% |
| E-commerce / COD | 15% – 40% (before ad spend) |
| Restaurants | 60-70% gross, 3-9% net |
| Manufacturing | 25% – 35% |
| Services / software | 60% – 90% |
Benchmarks are general guidance only and vary widely by country, category, and business model.
Frequently asked questions
What is a good profit margin?
It depends on the industry — see the benchmark table above. Compare your margin to others in your specific category rather than to one universal number.
How is margin different from markup?
Markup is profit against cost; margin is profit against selling price. A 50% markup is only a 33.3% margin — use the Markup ↔ Margin converter on this page to switch between the two instantly.
How do I calculate margin after fees and shipping?
Subtract every real selling cost — platform fees, payment fees, shipping, packaging, ads — from your selling price before dividing by the selling price. Use the Net Margin After Fees tab to do this automatically.
What's the formula to find selling price from a target margin?
Selling Price = Cost Price ÷ (1 − target margin as a decimal). Dividing by cost directly instead of by (1 − margin) is a common mistake that undershoots the target price.