How to calculate profit margin and markup

What you need

• Your selling price for one item or job.
• Your cost to deliver it: materials, packaging, shipping, card fees and the direct labor that went into it, including your own time at a fair hourly wage.

1. Find your gross profit

Gross profit = price − cost. A candle maker sells a candle for $18. Wax, wick, jar and label cost $4.50, and 15 minutes of labor at $12 an hour adds $3.00, so the cost is $7.50. Gross profit is $18 − $7.50 = $10.50.

2. Divide by the price for margin

Margin = gross profit ÷ price. $10.50 ÷ $18 = 0.583, or 58.3%. Of every dollar a customer pays, 58 cents is left to cover rent, marketing and your profit.

3. Divide by the cost for markup

Markup = gross profit ÷ cost. $10.50 ÷ $7.50 = 1.40, or 140%. Same dollars, different base, very different number. That's why mixing the two up is so costly.

4. Work backward to price for a target margin

Price = cost ÷ (1 − target margin). For a 65% margin: $7.50 ÷ 0.35 = $21.43. Don't add 65% to the cost: that gives $12.38, which is only a 39% margin.

5. Do it for the whole month

From your profit and loss statement: (total sales − cost of goods sold) ÷ total sales. If it’s lower than your per-item margin, discounts, waste, redos or free extras are eating it.

In a spreadsheet

Format B3, B4 and B5 as percentages.

Check your answer

Margin can never reach 100%; if yours does, the cost is missing something. And markup is always bigger than margin for the same sale. If yours isn’t, the two are swapped.

Published by Groundwork Business Advisory. Updated October 19, 2026.