How the profit margin calculator works
Last updated 10 November 2026
Margin tells you how much of each rand of sales is profit. It is the number to watch when prices and costs change.
How it works
- Profit = price − cost.
- Margin = profit ÷ price.
- Price for a margin = cost ÷ (1 − margin).
Worked example
With the starting figures:
- A cost of R 600.00 sold at R 1 000.00 gives a profit of R 400.00.
- The margin is 40.0% and the markup is 66.7%.
How to read your result
The result has three parts. Profit is the rand amount left after the cost. Margin is that profit as a share of the selling price. Markup is the same profit as a share of the cost.
The two percentages answer different questions. Margin tells you how much of every rand a customer pays is profit. Markup tells you how much you added on top of what the item cost you.
Margin and markup are not the same
Both use the same profit, but divide by different things. In the worked example the profit is R 400.00. Divide it by the price of R 1 000.00 and you get a margin of 40.0%. Divide it by the cost of R 600.00 and you get a markup of 66.7%.
Because the cost is smaller than the price, markup is always the larger number. Mixing them up is one of the most common pricing mistakes, so check which one a supplier, a spreadsheet or a pricing rule is using.
Working back to a price
The second mode starts from the margin you want and finds the price. It divides the cost by one minus the margin. A higher target margin pushes the price up faster than you might expect, and a margin of one hundred percent is not possible, because the cost would then have to be nothing.
What this does not cover
The calculator works on one item at a time. It does not know about your overheads, discounts, returns, VAT or payment fees. If you want to count those, include them in the cost. Margin before overheads is called gross margin. Once rent, salaries and other running costs come off, the net margin is lower.
Common mistakes
- Using the markup percentage where a margin is expected. The same profit gives a smaller margin than markup.
- Leaving costs out of the cost field, such as delivery, packaging or card fees. The margin then looks better than it is.
- Comparing the margin of two products without checking whether one cost figure includes VAT and the other does not.
- Entering a selling price that is below the cost. The result then shows a loss, which appears as a negative margin.
Related questions
Is a higher margin always better? Not necessarily. A high margin on few sales can earn less in total than a lower margin on many sales. The margin only tells you about each item.
Can I use this for a service? Yes. Enter what the service costs you to deliver as the cost, and what you charge as the price.
Things to watch
- Count every cost, including delivery and card fees.
- Margin before overheads is gross margin. Net margin is lower.
See also the markup calculator. Read the full disclaimer.