Business & Finance

Follow one sale all the way to the bank and the two calculators on this page turn out to be the first step of a longer walk. Say a thing costs you $80 and you sell it for $120. That is $40 of gross profit, and it is the only number the two tools disagree about how to name: measured against the $120 you were paid it is a 33.3% margin, measured against the $80 you laid out it is a 50% markup. Neither is more right. Markup is the seller's way of building a price up from cost; margin is the accountant's way of reading a price that already exists. The markup calculator starts from cost and a percentage and gives you the price; the profit margin calculator starts from cost and price, or from a target margin, and gives you everything else.

Where people go wrong is not in the arithmetic but in which base they had in mind when they set the target. Aim for "40% on this" and the two tools give different prices — $112 if you meant 40% on cost, $133.33 if you meant 40% of the sale — and the second is the one that actually leaves 40 cents of every dollar as profit. Any percentage in a supplier's price list, a franchise agreement or a tender is one or the other, and it is worth asking which before you build a season's pricing on it.

Now sell a thousand of them. Revenue is $120,000, the stock cost $80,000, and the $40,000 of gross profit is what both calculators have been describing. Nothing after this point is theirs. Rent, software, insurance and your own time come out next; call that $10,000 and you have $30,000 of net self-employment income. That figure is where the self-employed tax calculator takes over: in Ontario it puts $2,245 of income tax and $3,154 of CPP on it, leaving $24,602 — about three-fifths of the $40,000 the margin implied, and none of it withheld along the way.

Sales tax runs alongside all of this without touching it. At $120,000 of revenue you are well past the $30,000 line for GST/HST registration, so in Ontario 13% goes on every invoice — $15,600 across the year — and 13% comes back on every purchase that carried it, $10,400 on that stock. You remit the $5,200 difference. It never enters the margin because it was never yours; cost and price in both calculators are the amounts before tax, and that is the only way the percentages stay honest.

That is also why this section has no province selector and no tax year. Margin and markup are the same in every currency and every jurisdiction, and the moment you want to know what the profit costs in tax, you are on a different page of this site with a very specific one.