Profit margin tells you how much of every unit of revenue you keep after the costs of doing the work. It takes two lines of arithmetic:
Take the defaults in the calculator above. A client project is priced at 12,000. The work takes 180 hours at a cost of 26 an hour, which is 4,680, and there are 1,500 of other direct costs, so the total cost is 6,180. Profit is 12,000 − 6,180 = 5,820, and the margin is 5,820 ÷ 12,000 = 48.5%.
The calculator works in any currency. Enter amounts without tax.
"},{"heading":"Margin vs markup","html":"Markup measures the same profit against cost instead of price: markup = profit ÷ total cost × 100. In the example, 5,820 ÷ 6,180 = 94.17%. Both numbers describe the same deal, but they are never equal, and mixing them up is one of the most common pricing mistakes.
| Markup on cost | Profit margin |
|---|---|
| 20% | 16.67% |
| 25% | 20% |
| 30% | 23.08% |
| 50% | 33.33% |
| 100% | 50% |
| 200% | 66.67% |
To convert: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin). A margin can never reach 100%; a markup has no upper limit.
"},{"heading":"Margin on a client project","html":"In a product business, cost is mostly what you paid for the goods. In a service business, cost is mostly people’s time. That is why the calculator asks for hours and a cost per hour rather than one cost figure.
The cost per hour should be loaded: pay, plus the employer’s costs, plus a share of overhead, divided by the hours a person is paid for. If you don’t know yours, the hourly rate calculator works it out, and what an hour of your team actually costs explains the method.
Other direct costs are the ones that exist only because of this project: a freelancer, stock footage, printing, travel, a licence bought for the client. Rent and your own tools are overhead; they belong in the cost per hour, not here.
Selling a product instead? Set the hours to 0 and enter the product cost under other direct costs.
"},{"heading":"The price for a target margin","html":"To reach a margin, divide the cost by what is left after the margin: price = total cost ÷ (1 − target margin). For a 30% margin on a cost of 6,180, that is 6,180 ÷ 0.7 = 8,828.57.
The common shortcut, adding 30% to cost, gives 8,034, which is a margin of only 23.08%. The gap grows with the target: adding 50% to cost gives a 33.33% margin, not 50%.
"},{"heading":"Your hour budget","html":"For fixed-price work, the most useful number is often the hours you can spend before the margin falls to your target: hour budget = (price × (1 − target margin) − other direct costs) ÷ cost per hour. In the example: (12,000 × 0.7 − 1,500) ÷ 26 = 265.4 hours.
The quote assumed 180 hours, so there are about 85 hours of headroom before the project drops below 30%. Share that number with the team at the start and check logged hours against it every week. When extra requests start arriving, it is also the figure that tells you it is time to talk about billing for scope creep.
"},{"heading":"Gross margin is not net profit","html":"This calculator shows a project’s gross margin: what the work leaves after its own costs. If your cost per hour already includes overhead, the result is close to profit after overhead; if it includes only pay, overhead still has to come out of it. Either way it is not net profit: tax, loan interest and costs that no project carries are not in it.
Across all clients, the same logic shows which ones actually pay for the company. Measuring contribution per client walks through it with an example.
"},{"heading":"From an estimate to the real number","html":"A calculator gives you the margin you planned. The margin you earn depends on the hours actually spent. In PLYNTUM, people record time against tasks, managers approve timesheets (from the Core plan), and logged hours at each person’s loaded cost, plus direct expenses, are set against the project value. That is project profitability, and you see it while the project is running rather than after the invoice.
PLYNTUM is not accounting software: it keeps no ledger and files no taxes, so you keep your accounting tool for that. See how project finance works or the plans and prices.
"}]},"keyFacts":[["What it calculates","Profit, profit margin, markup, the price for a target margin and the hours a project can take before the margin falls to target."],["Formula","Profit margin = (price − total cost) ÷ price × 100; markup = (price − total cost) ÷ total cost × 100."],["Cost","Free, with no sign-up and no email address."],["Your figures","Nothing you type leaves the page; it works in any currency."]],"faq":[["What is a good profit margin?","There is no single number that suits every business. The margin has to cover your overhead and still leave profit, so work backwards from your own costs; the hourly rate calculator shows the break-even rate for your team."],["Is profit margin the same as markup?","No. Margin compares profit with the price, markup compares it with the cost. A 50% markup is a 33.33% margin."],["How do I calculate profit margin in Excel or Google Sheets?","With the price in A2 and the total cost in B2, use =(A2-B2)/A2 and format the cell as a percentage. For markup, use =(A2-B2)/B2."],["Can profit margin be more than 100%?","No. Margin is a share of the price, so it stays below 100%. Markup has no upper limit: selling at three times the cost is a 200% markup and a 66.67% margin."],["What cost per hour should I use?","The loaded cost: pay, employer costs and a share of overhead, divided by paid hours. The hourly rate calculator works it out from your own figures."],["Does PLYNTUM calculate project margins?","Yes. Logged hours at each person’s loaded cost, plus direct expenses, are set against the project value; timesheet approval starts with the Core plan. It is project profitability, not accounting."]]}