Calculate gross margin, net margin, and markup from cost and revenue. Find the selling price you need for any target margin. Compare margin vs markup side by side.
| Margin | Markup | Cost $60 | Sell Price | Profit |
|---|
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Profit margin is the single most important number in any business. Revenue means nothing if your costs eat it all. A company doing $10 million in revenue with a 2% net margin keeps $200,000. A company doing $2 million with a 20% margin keeps $400,000. Margin is what separates growing businesses from failing ones. This guide explains every type of margin, the critical difference between margin and markup, and how to use margins to make better pricing and business decisions.
| Margin | Equivalent Markup | Cost $60 → Sell Price |
|---|---|---|
| 20% | 25% | $75.00 |
| 25% | 33.3% | $80.00 |
| 30% | 42.9% | $85.71 |
| 33.3% | 50% | $90.00 |
| 40% | 66.7% | $100.00 |
| 50% | 100% | $120.00 |
| 60% | 150% | $150.00 |
💡 Key insight: A 50% markup gives you only a 33.3% margin. Many business owners set a “50% margin” but actually calculate a 50% markup — their real margin is only 33.3%. This single mistake can turn a profitable business into a struggling one. Always use the margin formula, not markup, when setting prices.
Scenario 1: Product Pricing. Sarah makes handmade candles. Material cost: $8. Labor: $4. Total cost: $12/candle. She wants a 60% gross margin. Selling price: $12 / (1 - 0.60) = $30/candle. If she mistakenly used 60% markup instead: $12 × 1.60 = $19.20 (actual margin: 37.5%). The margin formula gives her $30; the markup shortcut gives her $19.20. That $10.80 difference per candle is the difference between thriving and barely surviving. Use our Markup Calculator to compare.
Scenario 2: Restaurant Analysis. Marcus runs a restaurant. Monthly revenue: $85,000. Food costs: $28,000 (33%). Labor: $25,000 (29%). Overhead: $22,000 (26%). Gross margin (food only): 67%. But after all costs: net margin = ($85,000 - $75,000) / $85,000 = 11.8%. His gross looks great, but net is typical for restaurants. A 5% increase in food costs without a price increase drops net margin to 8.5%. Thin margins mean small cost changes have big impacts.
Scenario 3: SaaS Business. Priya runs a SaaS product. Monthly revenue: $50,000. Server costs: $3,000 (6%). Support team: $8,000 (16%). Gross margin: 78%. Operating expenses (marketing $12,000, dev team $18,000, office $4,000): $34,000. Net margin: ($50,000 - $45,000) / $50,000 = 10%. At scale, SaaS margins improve because server costs grow slower than revenue. Doubling revenue to $100,000 might only add $2,000 in server costs, pushing gross margin to 85%+. Use our Break-Even Calculator to find her break-even subscriber count.
Scenario 4: Freelancer Pricing. David charges $75/hour for web development. His effective cost (including self-employment tax, insurance, software, unpaid time): $45/hour. Margin: ($75 - $45) / $75 = 40%. To reach 50% margin, he needs to charge: $45 / (1 - 0.50) = $90/hour. A $15/hour increase gives him 25% more take-home profit. Use our Freelance Rate Calculator for a detailed rate analysis.
| Industry | Gross Margin | Net Margin |
|---|---|---|
| Software / SaaS | 70-85% | 15-30% |
| Professional Services | 50-70% | 15-25% |
| E-commerce / Retail | 25-50% | 2-10% |
| Restaurants | 60-70% | 3-9% |
| Manufacturing | 25-35% | 5-10% |
| Construction | 15-25% | 3-8% |
| Grocery / Supermarket | 25-30% | 1-3% |
Compare your margins to your industry benchmarks. If your gross margin is below average, your costs are too high or prices too low. If gross is good but net is low, your overhead is eating your profit. Use our Percentage Calculator for quick margin calculations on individual products.
| 20% margin | 25% markup |
| 33% margin | 50% markup |
| 40% margin | 66.7% markup |
| 50% margin | 100% markup |
| 60% margin | 150% markup |