How to Calculate Profit Margin (Step by Step)

The exact formula for profit margin, worked examples at different price points, and how to find the price or cost needed to hit a target margin.

Profit margin answers one question: of every dollar a customer pays, how much is actually profit? The formula is simple, but three different versions of the question come up in practice.

Finding your margin

Margin % = (sale price − cost) ÷ sale price × 100. A product that costs $30 and sells for $45 has a profit of $15, and a margin of $15 ÷ $45 = 33.3%.

Finding a price that hits a target margin

Sale price = cost ÷ (1 − target margin %). To turn a $30 cost into a 40% margin: $30 ÷ 0.60 = $50.00. Dividing, not multiplying, is the part people get wrong — multiplying cost by (1 + 40%) gives a markup calculation, not a margin one, and lands on the wrong price.

Finding the max cost for a target margin

Cost = sale price × (1 − target margin %). If you plan to sell at $50 and need a 40% margin, the most you can pay a supplier is $50 × 0.60 = $30.00 — useful for negotiating with vendors before committing to a retail price.

The Margin / Markup Calculator runs all three of these directly, plus the equivalent markup percentage for each result.