If you want to know a cost price, cost margin, or selling price, you will find a margin calculator is one of the most valuable tools to have at your disposal. You can calculate the cost of goods sold, how much you paid versus how much you sold, and the profit as well. Working out such figures is crucial to the longevity of your business.
If you would like to know more than just margins in your business, then a VAT calculator, sales tax calculator, or a “margin with a discount” calculator could also be worth your consideration.
How Do You Calculate a Profit Margin?
The process is simple, and as follows:
1. Identify how much you paid for goods – the COGS (cost of goods sold)
E.g., a pair of shoes = $10
2. Figure out how much you will sell the goods for (revenue)
Shoe price on the shelf - $40
3. Calculate your gross profit. Take your costs from your revenue
$40 (revenue) - $10 (cost) = $30
4. Divide your gross profit by the money you made (revenue)
$30 / $40 = 0.75
5. Multiply it by 100 to make it a percentage
0.75 x 100 = 75%On a pair of shoes, you have a 75% profit margin.
When you use a margin calculator, you will quickly discover it’s not dissimilar from a percentage calculator. The only difference is that you base it on your revenue instead of the cost of goods sold.
What is the Gross Margin Formula?
If you want to work out what your gross margin is, this is the formula to follow:
Gross margin = 100 x the profit / the revenue (as a percentage).If you want to know the profit equation:
The profit = the revenue – the costs
Which also looks like this:
The margin = 100 x (the revenue – the costs) / the revenue
And, for calculating your profit margin:
The revenue = 100 x the profit / the margin
Or how much you can pay:
The cost = the revenue – the margin x the revenue / 100
Margin Calculator Terminology, and more…
When it comes to determining the margin, gross profit margin, gross margin, and profit margin, everyone has different ideas about what they include or mean. In some cases, the costs are inclusive of everything relating to a product (e.g., shipping, tax). Some cases remove one or more of these elements.
Regardless of the name of the margin or the general terms, you will find that this margin calculator is suitable for profit margins, gross profits, profit margin formulas, and anything else relating to profits!
Mark-Up vs. Margin
You might think there is no difference between the margin and the mark-up, but there is a crucial difference between the two. The gross margin is the profit-to-sale price ratio, while the mark-up is the purchase price-to-profit ratio – also referred to as the Cost of Goods Sold (COGS).
You can refer the profit as a margin when you are dealing with figures but not percentages. Mark-up calculators tend to be as intuitive as margin calculators.