This margin calculator can estimate the gross margin, mark up percent and the gross profit based on the cost of an item vs. its selling price or revenue. Everything there is to know on this topic is presented below the tool.
How to calculate margin, gross profit and mark up percentage?
This margin calculator takes account of the cost/acquisition price of some products and the revenue obtained by selling them further on. Its algorithm is based on the formulas for the gross profit, mark up percentage and gross margin rate as they are explained below:
- The gross profit (P) is calculated as the difference between the cost (C) to produce specific product or the acquisition cost to buy it from a provider, and the revenue (R) from selling that product.
P = R – C
- The mark up (M) rate is determined as the profit (P) divided by the cost (C) of the product.
M = P/C = (R - C)/C
- The gross margin (G) percentage is estimated as the profit (P) divided by the selling price or revenue (R). This financial indicator measures your sales profitability since it counts what portion of sales revenue is available to sustain your business continuity, by covering the costs of your business and provide some profit. It is a significant figure you always need to analyze against your competitors. If the comparison of this shows that your margin is lower than in case of your competitors, that can either mean you sell lower volumes or that you have higher costs in comparison to your competitors.
G = P/R = (R - C)/R
Example of a margin, gross profit and mark up rate calculation
In case you need to perform this king of calculation, besides using our margin calculator you have the option to do it yourself on paper. Let’s take an example and explain it, by using the formulas presented above:
Example: someone produces 10 books at an unit cost of $5 and then sells these items at a unit price of $6. What are the margin, gross profit and mark up rate?
Total cost = 10 books * $5 = $50
Total revenue = 10 books * 6$ = $60
Gross profit (P) = $60 - $50 = $10
Mark up rate (M) = $10/$50 * 100 = 20% (or 0.2 in decimal format)
Gross margin (G) = $10/$60 * 100 = 16.67% (or 0.1666 in decimal format)
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