Definition – What is a margin?
Margin is the difference between the seller’s cost of the product and the selling price. A high margin means that the seller makes a lot of profit when the item is sold, a low margin means that not as much profit is made per item.
Formula – How to calculate margin
Gross Profit = Revenue – Cost
Markup Percent = (Gross Profit ÷ Cost) x 100%
Gross Margin Percentage = (Gross Profit ÷ Revenue) x 100%
A store sells a product at $45 that costs $25.
Gross Profit = $45 – $25 = $20
Markup Percent = ($20 / $25) x 100% = 0.8 x 100% = 80%
Gross Margin Percentage = ($20 / $45) x 100% = 0.4444 x 100% = 44.44%
Sources and more resources
- Business Case Analysis – Margin in Business, Finance, and Investing – A description of margin in relation to business and finance.
- Entrepreneur – Know your sales margins – An article on how to calculate and analyze sales margins.
- Investopedia – What’s a good profit margin for a new business? & Profit Margin & What is the formula for calculating profit margins? – Some articles on profit margin and how it works with business.
- Wikipedia – Profit Margin – An overview of how to calculate profit margin.