Profit Margin, Markup & ROI Calculator

Margin, markup and ROI

Profit is simply revenue minus cost. What trips people up is that the same profit can be expressed as two very different percentages depending on what you divide by.

margin % = profit / revenue × 100

markup % = profit / cost × 100

Margin and markup are not the same

Margin measures profit against the selling price;markup measures it against what you paid. Buy at 80 and sell at 100 and you make 20 profit — that's a 20% margin but a 25% markup. Markup is always the bigger number, and confusing the two is one of the most common and expensive mistakes in pricing: setting a 30% markup when you needed a 30% margin leaves you short every single sale.

Pricing for a target margin

To hit a margin you can't just add the percentage to cost. The right formula divides instead: price = cost / (1 − margin/100). For a 30% margin on an 80 cost that's 80 / 0.7 ≈ 114.29 — noticeably more than the 104 you'd get by naively adding 30%. Switch the mode above to work this out directly.

ROI needs a separate investment figure

ROI % = profit / amount invested × 100

Return on investment measures profit against what you actually put in — and that's rarely the same as the cost of goods. Your investment might include stock, equipment, premises, and marketing, while the unit cost only covers making one item. That's why ROI has its own optional field here: without the invested amount there is no way to work it out, and dividing profit by cost of goods would simply restate the markup under a different name.

Note too that ROI says nothing about time. A 50% return earned in one year and the same 50% earned over ten are very different propositions, so compare ROI figures only over matching periods — or annualise them first.

Worked example

Buy at 80, sell at 100: profit is 20, a 20% margin and a 25% markup. If earning that 20 took a total investment of 500 — stock plus the equipment and advertising behind it — the ROI is 20 / 500 = 4%, nothing like the 25% markup. Same sale, and the two numbers answer completely different questions.

Margin and markup are not the same number

This is the distinction that costs money. Margin is profit as a share of the selling price; markup is profit as a share of the cost. A 50% markup is a 33% margin, and a 50% margin needs a 100% markup. Confusing them systematically underprices work. The return on investment figure is also only meaningful with a genuine investment amount — profit divided by cost of goods is markup wearing a different name, not ROI, and this page asks for the investment separately for that reason.