Your profit margin is the share of each sale you actually keep after paying for the product, shipping, packaging and payment fees. It's the number that tells you whether a discount pays off, how much you can spend on ads or whether you're quietly selling below cost.
How to calculate profit margin
Margin = (selling price − cost) ÷ selling price × 100
Say you sell a printed T-shirt for $50 and it costs you $28 to make. You keep $22 per shirt, so your margin is $22 ÷ $50 = 44%. Add $4 of shipping and packaging per order and your total cost is $32: profit drops to $18 and margin to 36%. That's why the calculator has fields for other costs and a percentage fee.
Margin vs. markup
Margin compares profit with the price; markup compares it with the cost. A product that costs $70 and sells for $100 has a 30% margin and a 42.9% markup. Mixing them up is how prices end up too low: if you want a 30% margin and add 30% to a $70 cost, you charge $91 and your real margin is only 23.1%. The right way is to divide: price = cost ÷ (1 − margin), so $70 ÷ 0.7 = $100.
What a discount does to your margin
A discount comes straight out of your profit, not your cost. With a 30% margin, a 10% discount means you need 30 ÷ (30 − 10) = 1.5 times the units, or 50% more, to make the same profit. If the discount equals your margin you make nothing; if it's bigger, you lose money on every sale. Sending the offer to a customer? The quote generator builds it with the discount applied.
Sales tax isn't part of your margin
In the US, sales tax is usually added on top of your price at checkout, so your shelf price is already the number to use. If your price includes tax, check “The price includes tax” and type the rate: the calculator removes it before working out the margin. When you're ready to track margins across every order, see Zavora's pricing.