Start with gross profit
Gross profit is selling price minus cost. If an item costs $80 and sells for $100, gross profit is $20. This simplified calculation does not deduct overheads, payment fees, freight, wages or income tax unless those costs were included in the cost figure you entered.
Use consistent GST treatment for cost and selling price. The margin calculator is labelled for values excluding GST. Whether GST on a purchase is recoverable is a separate tax question.
Margin divides by selling price
Profit margin = gross profit ÷ selling price × 100. For the $80 cost and $100 sale, margin is $20 ÷ $100 × 100 = 20%.
To reach a target margin, divide cost by one minus the target expressed as a decimal. At an $80 cost and 25% target margin, $80 ÷ 0.75 gives approximately $106.67 before GST. Rounding the selling price can slightly change the exact resulting percentage.
Markup divides by cost
Markup = gross profit ÷ cost × 100. The same $20 profit on an $80 cost is a 25% markup. A 25% markup therefore does not produce a 25% margin.
To apply a markup, multiply cost by one plus the markup expressed as a decimal. An $80 cost with a 25% markup gives $80 × 1.25 = $100. At zero cost, markup is undefined because the calculation would divide by zero; the tool states this instead of displaying a misleading percentage.
Check the commercial result
If the $100 sale is taxable at 10%, the customer-facing total becomes $110. The extra $10 GST does not turn the original $20 gross profit into $30. Keep the tax calculation separate from the pricing decision.
A sale below cost produces a negative margin and markup. The calculator displays the loss rather than turning it into zero. Use that result to revisit the assumptions, including omitted costs, discounts and the price customers actually pay.
Common questions
What is the margin on an $80 cost and $100 selling price?
Gross profit is $20, margin is 20%, and markup is 25%.
Does gross profit include all business costs?
Only the costs you put into the cost figure. This simplified tool does not separately deduct overheads, fees or income tax.
Official sources
General information only. Examples are illustrative. Check the official guidance for your circumstances. Our editorial approach · Report a correction