# Profit Margin Calculator

Profit margin is a ratio of **profit to revenue** expressed as a percentage (profit being the difference between revenue and cost). Example situation: a shopkeeper buys a huge bar of chocolate (what else?) from his delivery guy for `$80`

and sells it to a customer for `$100`

. The profit is `$100 - $80 = $20`

. The ratio of profit to revenue is `$20 / $100`

, or, in other words, `20%`

.

## How to calculate profit margin?

The formula for profit margin: `profit margin = 100 * profit / revenue`

. The `100`

is there, because we express profit margin as a percentage (1 hundredth parts) and not as a fraction - (`20%`

is the same as `0.2`

or `1/5`

or `20/100`

).

When you only have cost and revenue, and not the profit, substitute it with `revenue - cost`

, like so: `profit margin = 100 * (revenue - cost) / revenue`

.

## Profit margin vs. markup

It is easy to confuse profit margin with markup. Markup is a ratio of **profit to cost** as opposed to profit margin's ratio of **profit to revenue**. With markup, you compare your profit to the purchase price, not the selling price. In the huge bar of chocolate example, we would compare $20 to $80, so markup is 25%.