Buy an item for $60, sell it for $100, and the profit is $40. That equals a 40% gross margin and a 66.7% markup. To hit a 25% margin on a $60 cost, the price has to be $80. Pick a mode above and enter your own numbers.
Margin and markup are different
Margin is profit as a share of the selling price, while markup is profit as a share of cost. One sale, two numbers. In the example, $40 of profit is 40% of $100 but 66.7% of $60. Mixing them up is costly.
The formulas
Gross margin is price minus cost, divided by price. Markup uses the same top line, divided by cost. To get a price from a margin, divide the cost by one minus the margin. With a 25% margin and a $60 cost, that is $60 divided by 0.75, or $80.
Setting a price
Pick the margin that covers your costs and still leaves a profit, then work backward to the price. Count more than the item itself: shipping, fees and your own time belong in the cost. A thin gross margin can mean brisk sales and a business that still loses money.
Gross and net margin
Gross margin looks only at the cost of goods, the direct price of what you sell. Net margin takes off everything else, such as rent, wages and taxes. This calculator shows gross margin only. What counts as healthy depends on the industry, from around 20% in some retail to more than 60% in software.
Discounts and margins
Discounts bite. Give 20% off an item with a 40% margin and the margin drops to 25%. Test first. Run a planned sale through the calculator, so you know exactly what profit is left once the discount has done its work.
Tax on sales
Margin comes before sales tax. That money is not yours. Use prices before GST or HST, and keep tax out of every step until the very end. To strip the tax out of a price that includes it, use the GST and HST calculator.
Pricing for a small business
Plenty of owners add a flat amount to cost, then discover it does not cover rent and wages. Begin with the margin you need. Work backward. With a 40% gross margin and fixed costs of $2,000 a month, sales must reach $5,000 to break even. Do that sum first.
Review your margins often
Prices move. A product that earned 40% last year may earn 30% now. Recheck your top sellers every few months. Raise prices before margins slip too far. A small increase on a popular item usually loses fewer customers than you fear.
Small businesses in Toronto
High rent, wages and delivery costs squeeze margins for Toronto shops and online sellers. If you are registered for HST, you collect it from customers and remit it, so it is not profit. Check your margin after card fees and delivery, and revisit prices whenever costs shift.
Where to go next
Check percentages with the percentage calculator. The ROI calculator measures the return on a purchase. A sole proprietor can see the tax on income in the income tax calculator.
Frequently asked questions
What is the difference between margin and markup?
Margin is profit over the selling price. Markup is profit over the cost.
How do I calculate gross margin?
Subtract the cost from the price and divide by the price.
How do I find a price from a margin?
Divide the cost by one minus the margin as a decimal.
Is a 40% margin the same as a 40% markup?
No. A 40% margin equals a 66.7% markup.
What is a good gross margin?
It depends on the industry. Many retailers earn 20% to 50%.
Should I include tax in the price?
No. Work with prices before GST or HST.
Sources and updates
Last reviewed: . Full disclaimer. How we build calculators. Editorial policy.
Estimate only. This calculator gives general information for planning. It is not tax, legal or financial advice, and it is not affiliated with the City of Toronto, MPAC or the Canada Revenue Agency. Results depend on the numbers you enter and may differ from official amounts. Check official sources or a qualified professional before you decide.