Profit Margin Calculator & Margin Formula

Profit margin calculator overview

Profit margin measures profit as a percentage of revenue. Markup measures profit as a percentage of cost. They answer different questions and produce different percentages from the same sale.

This calculator removes 10% GST from a GST-inclusive customer price before calculating revenue. That matters because GST collected is not gross profit. It then subtracts the product or service cost and any additional direct cost entered.

How the calculation works

For a GST-inclusive price, revenue is customer price ÷ 1.1. Otherwise the entered customer price is used as revenue. Product cost and other direct cost are added, then deducted from revenue to calculate gross profit per unit. Unit count scales the total gross profit.

Enter direct costs on the same ex-GST basis as revenue where applicable. The tool does not determine GST registration, tax-credit eligibility or tax payable.

Costs and limits

The tool uses the costs you enter. Advertising, returns, wages, rent, subscriptions and financing are excluded unless deliberately included as direct costs. See the ATO’s guidance on charging GST for the tax rules; this calculator only applies the selected price treatment.

Cost-basis mistakes

• Mixing GST-inclusive direct costs with ex-GST revenue.
• Reading markup on direct costs as margin on sales.
• Treating gross profit as cash available after advertising, wages, overheads and tax.

Profit margin and markup formulas

Gross profit = ex-GST revenue − direct costs.

Profit margin = gross profit ÷ ex-GST revenue × 100.

Markup = gross profit ÷ direct costs × 100.

If a product costs A$60 and generates A$100 ex-GST revenue, gross profit is A$40. Margin is 40%, while markup is 66.7%.

Using the fields

1. Enter the customer price and choose whether that price includes GST.
2. Enter product and other direct costs per unit.
3. Enter the unit count.
4. Read margin, markup and gross profit as separate measures.

Worked margin examples

A$110 GST-inclusive sale

An A$110 customer price contains A$100 ex-GST revenue. With A$55 product cost and A$5 fulfilment cost, gross profit is A$40, margin is 40% and markup is 66.7%.

Discounting the same product to A$88

An A$88 GST-inclusive sale produces A$80 ex-GST revenue. With A$60 of direct costs, gross profit falls to A$20 and margin falls to 25%. A 20% customer discount has cut gross profit by 50%.

100 units

At A$40 gross profit per unit, 100 units produce A$4,000 gross profit before overheads. That is not net profit: advertising, subscriptions, wages, storage, refunds, tax and finance costs still need to be paid.

Reading profit, margin and markup

Gross profit is revenue after the selected GST treatment minus the entered direct costs. Margin expresses that profit as a percentage of revenue; markup expresses it as a percentage of direct cost. The two percentages use different denominators.

For $100 revenue and $60 direct cost, gross profit is $40, margin is 40% and markup is about 66.67%. These are fixed arithmetic results for the inputs, not a forecast range. If costs or the selling price are uncertain, run each alternative as its own labelled scenario.

A negative gross profit means the entered revenue does not cover the entered direct costs. Positive gross profit still has to fund overheads, advertising, wages and tax that were not included. Where a ratio’s denominator is zero, read its N/A explanation rather than treating an undefined ratio as 0%.

Common margin mistakes

• Using GST-inclusive revenue in the numerator.
• Confusing margin with markup.
• Leaving payment fees, fulfilment, packaging or commissions out of direct costs.
• Calling gross profit “net profit”.
• Applying a discount without recalculating profit dollars.
• Using an average cost that hides expensive product variants or shipping zones.

Limitations

The calculator shows gross profit from the costs entered. It does not automatically include advertising, wages, rent, subscriptions, insurance, returns, bad debt, depreciation, interest or income tax. Use the product pricing calculator for percentage fees and target-margin pricing, and a break-even calculator for fixed overheads.

Using this calculation

Check the GST basis and all direct costs before comparing margins. Preserve the distinction between profit per unit, margin on revenue and markup on cost.