Saying “I make 25%” sounds clear, but the percentage needs a reference point. Are you comparing profit with the selling price or with the cost? The distinction changes your pricing, even when the cash profit is the same.
A product that costs 80 and sells for 100
With no additional costs, profit per unit is 20. Profit margin divides that profit by the selling price: 20 ÷ 100 = 20%. Markup divides it by the cost: 20 ÷ 80 = 25%.
A 20% margin and a 25% markup describe the same sale in this example. Do not use the two percentages interchangeably when comparing offers or setting a pricing target.
Add costs that vary with each sale
Suppose shipping and payment fees add 5 per unit. The total variable cost becomes 85 and the remaining profit is 15. The margin becomes 15% and the markup is about 17.65%. If the buyer pays shipping directly, enter only the part of that cost you cover.
Rent, fixed salaries, and overhead are not automatically allocated in the profit margin calculator. Its result is therefore not your business's net profit after all expenses and taxes. Start with the profit margin calculator to examine your unit costs.
How many units cover your fixed expenses?
If fixed expenses for the period are 6,000, the unit selling price is 100, and the variable cost per unit is 60, each unit contributes 40 toward fixed expenses. You need to sell 6,000 ÷ 40 = 150 units to break even. If the answer is fractional, round up to the next whole unit in practice.
Use the break-even calculator and make sure all expenses and unit counts refer to the same period. If the selling price does not cover the variable cost, there is no finite break-even point under this model.
Compare before changing your price
- Enter your current costs and selling price, then calculate the result.
- Pin that result for comparison, then try a different price or shipping cost.
- Review profit per unit and its percentage, then check the number of units needed to break even.
A higher margin alone does not establish that total profit will rise; price can affect the number of sales. The calculator shows the effect of your assumptions and does not measure customer response.