How to Calculate Profit Margin and Cost Ratio

From the selling price and the cost, finds the profit as price − cost, the profit margin as profit ÷ price × 100 (%), and the cost ratio as cost ÷ price × 100 (%). The two percentages add up to 100%.

Explanation

From a selling price and a cost, this finds the profit, the share of the price that is profit (the margin) and the share that is cost (the cost ratio).

m = \dfrac{s - c}{s} \times 100

$s$ is the selling price, $c$ is the cost and $m$ is the profit margin in per cent. The profit itself is $s - c$ . The cost ratio is $\dfrac{c}{s} \times 100$ , and the two percentages always add up to 100.

Example

With a cost of 700 and a selling price of 1000, the profit is $1000 - 700 = 300$ . The margin is $\dfrac{300}{1000} \times 100 = 30$ and the cost ratio is $\dfrac{700}{1000} \times 100 = 70$ . As promised, $30 + 70 = 100$ .

Notes

Margin is measured against the selling price. Markup measures the very same profit against the cost, and is a different number: here it is $\dfrac{300}{700} \times 100 = 42.85\ldots$ %. Quoting a markup as though it were a margin makes a product look far more profitable than it is.

If the price drops below the cost, both the profit and the margin turn negative.

The cost here is what one unit costs to buy or make. Rent, wages and other overheads have not been taken out, so this is a gross margin, not money in your pocket.