Why the margin you see is usually too high
Most profit margin calculators ask for two numbers, cost and price, and divide. For an item bought for $12 and sold for $30, that gives a 60% margin. It is the right answer to the question asked, and the wrong answer for anyone selling online, because the $18 between cost and price is not all yours. The card processor takes its cut, the parcel has to be paid for, and so does the box.
Here is the same sale with the costs that come out of it, using the example already filled in above: a payment fee of 2.9% plus $0.30, $4 shipping you pay, and $0.50 of packaging.
| Out of the $30 the buyer pays | Amount |
|---|---|
| Item cost | $12.00 |
| Payment fee (2.9% + $0.30) | $1.17 |
| Shipping | $4.00 |
| Packaging | $0.50 |
| Profit | $12.33 |
| Profit margin | 41.1% (not 60%) |
Nothing exotic was added: no advertising, no marketplace commission, no returns. The margin still dropped by a third. Add a marketplace fee or a 20% discount and it falls further; with the discount alone the buyer pays $24 and the profit is $6.50, a little over half of what it was. A small cut in price takes a much larger share of the profit, because the costs do not shrink with it.
The textbook price formula can lose money
The usual way to price for a margin is price = cost ÷ (1 − margin). For a 30% margin on a $12 item that is $12 ÷ 0.7 = $17.14. The formula assumes the item is the only cost. With the fees, shipping and packaging from the example, the break-even price is $17.30, so $17.14 loses $0.16 on every sale while looking like a 30% margin on paper.
Find my price solves the other way round: it counts every cost first, then works out the price that leaves the margin you asked for. For 30% in the example that is $25.04, and selling at $25.04 leaves $7.51, which is 30% of the price. If the percentage fees and the target margin together take the whole price, no price can work, and the calculator says so instead of printing a negative number.
Markup and margin are not the same number
Markup is profit as a share of cost; margin is profit as a share of the selling price. They describe the same sale, so one converts to the other, but the numbers are never equal. Asked for a 40% margin, a seller who adds 40% to cost ends up with 28.6%.
| Markup | Margin | Item costing $10 sells for |
|---|---|---|
| 20% | 16.7% | $12.00 |
| 25% | 20% | $12.50 |
| 40% | 28.6% | $14.00 |
| 50% | 33.3% | $15.00 |
| 75% | 42.9% | $17.50 |
| 100% | 50% | $20.00 |
| 150% | 60% | $25.00 |
| 200% | 66.7% | $30.00 |
The two formulas are margin = markup ÷ (1 + markup) and markup = margin ÷ (1 − margin). The converter under the calculator does this for any number. In the calculator itself, markup is measured on the item cost alone, which is how it is normally quoted; margin is measured after all costs, which is what you actually keep.
VAT, GST and the fee on top of the tax
Where prices include tax, part of what the buyer pays was never yours. On a £30 sale with 20% VAT, £5 goes to the tax office and £25 is the price you sell for. The calculator takes the tax out first and measures the margin on what is left, so a VAT registered seller and a US seller with the same figures get comparable margins.
The detail that most calculators miss is what the marketplace takes its fee on. Some charge their percentage on the full price including VAT, some on the price before VAT, and the fee pages say which. It is not a rounding difference. With the example costs, a 20% VAT rate and a 6.5% fee:
| £30 sale, 20% VAT, 6.5% fee | Fee on price incl. VAT | Fee on price excl. VAT |
|---|---|---|
| Marketplace fee | £1.95 | £1.63 |
| Payment fee | £1.17 | £1.03 |
| Profit | £5.38 | £5.85 |
| Profit margin | 21.5% | 23.4% |
| Break-even price | £22.72 | £22.25 |
Almost 9% more profit from a setting most sellers never check. Set Fees are charged on to match your marketplace and payment provider; if you are not sure, the first option is the cautious one.
Returns cost more than the refund
A returned item that can be sold again still costs the shipping twice: once to send it and once when it comes back, often on a label you pay for. The calculator counts that as an expected cost per sale, the return rate times twice the shipping. With $4 shipping:
| Return rate | Cost per sale | Profit per sale | Break-even price |
|---|---|---|---|
| 0% | $0.00 | $12.33 | $17.30 |
| 5% | $0.40 | $11.93 | $17.71 |
| 10% | $0.80 | $11.53 | $18.13 |
| 20% | $1.60 | $10.73 | $18.95 |
Where buyers order two sizes and send one back, the rate can be high, so it is worth a real number rather than zero. If a returned item cannot be resold, add its cost to Other costs as well.
What this calculator does not do
It works out one sale. It does not spread your rent, software subscriptions or wages across your products, and it has no marketplace fee presets, because the rates differ by country, category and seller plan and change often; copying them from the marketplace's own fee page is safer than trusting a list. Income tax on the profit is not included either.
If you send invoices for what you sell, the invoice generator makes the PDF in your browser in the same way, and the barcode generator prints labels for your stock. To keep a list of products and their margins on your phone, the same calculation is in our iPhone app, Satış Kârı Hesaplayıcı (in English on an English iPhone).