How to calculate profit margin and markup from revenue and costs
Profit is revenue minus costs. Profit margin divides that profit by revenue, while markup divides profit by cost. The two percentages answer different questions and should not be substituted for each other.
Use costs from the same period and scope as revenue. For a paid-media decision, separate advertising from pre-ad contribution if you want to calculate a meaningful break-even ROAS.
Profit margin % = (revenue − costs) ÷ revenue × 100Profit margin and markup worked example
$100 of revenue minus $60 of costs leaves $40 of profit. Profit margin is $40 divided by $100, or 40%. Markup is $40 divided by $60, or 66.67%. The percentages differ because margin uses revenue as the denominator while markup uses cost.
If the $60 cost excludes advertising and represents all other variable costs, the 40% contribution margin supports a margin-only break-even ROAS of 2.50x. If advertising is already inside the cost figure, do not use the resulting margin for that reciprocal or ad cost will be counted twice.
Gross margin vs contribution margin vs net margin for ads
Gross margin usually removes direct product cost. Contribution margin removes the variable costs needed to fulfill and collect an order, but normally stops before fixed overhead. Net margin includes a broader operating cost scope and may already include advertising. Definitions vary, so the cost rows matter more than the label alone.
For paid-media planning, use the margin available immediately before advertising. That keeps the break-even ROAS connection interpretable and lets fixed overhead be handled with an explicit allocation or a separate monthly model.
How profit margin connects to break-even ROAS
When the entered margin represents contribution before advertising, its reciprocal estimates break-even ROAS. A 40% pre-ad contribution margin supports up to 40% ACoS and implies a 2.50x break-even ROAS.
Profit margin and markup calculator FAQ
What is the difference between margin and markup?
Margin divides profit by selling price or revenue. Markup divides profit by cost. The same transaction therefore produces different margin and markup percentages.
Can net profit margin be used for break-even ROAS?
The break-even input should be the margin available before advertising. A net margin that already includes advertising cannot be reused without double-counting ad cost.