Key takeaway
Small businesses live on percents: margin % = (price − cost) ÷ price × 100, growth % tracks revenue, and tax is a rate. Learn the core formulas.
Scope and assumptions
Illustrative business math; real figures include overhead and varying tax. Not business advice.
Short answer: Small businesses live on percents: margin % = (price − cost) ÷ price × 100, growth % tracks revenue, and tax is a rate. Learn the core formulas.
Quick navigation
- Markup vs margin → markup-vs-margin-percentage
- Profit percentage calculation → profit-percentage-calculation
- Break-even percentage → break-even-percentage
- The calculator → Percentage Calculator
Why a small business runs on three percents
Owners rarely fail because they can't do the math — they fail because they confuse the three percents that decide survival: margin (is this sale profitable?), growth (are we actually expanding?), and tax (what the government takes). Each uses a different base, and mixing them up is how a "busy" business goes broke.
1. The core formulas
Margin % = (Price − Cost) ÷ Price × 100 — cost is the denominator's twin, price is the base Growth % = (New − Old) ÷ Old × 100 — always divide by the prior period Tax $ = Revenue × Rate % — or profit × rate, depending on the levy
2. Margin worked examples
| Cost | Price | Margin % |
|---|---|---|
| $60 | $100 | (100−60)/100 × 100 = 40% |
| $30 | $50 | 40% |
| $80 | $100 | 20% |
| $120 | $200 | 40% |
Notice $60/$100 and $120/$200 are both 40% margin — margin is a ratio, not a dollar amount.
3. Margin vs markup — the mix-up that sinks pricing
Margin divides by price; markup divides by cost. Same numbers, different answers:
| Cost | Price | Markup % | Margin % |
|---|---|---|---|
| $60 | $100 | (100−60)/60 = 66.7% | (100−60)/100 = 40% |
| $30 | $50 | 66.7% | 40% |
If a supplier quote says "50% markup," that's only a 33% margin — price it off margin, not markup (see markup-vs-margin-percentage).
4. Growth percent across periods
| Revenue last yr | This yr | Growth % |
|---|---|---|
| $120k | $150k | (150−120)/120 × 100 = 25% |
| $150k | $120k | (120−150)/150 × 100 = −20% |
| $80k | $200k | (200−80)/80 × 100 = 150% |
Base matters: a $30k drop from $150k is −20%, but the same $30k drop from $80k would be −37.5%.
5. Tax as a percent
Sales tax, VAT, and income tax are all rate percents applied to a base. Tax $ = base × rate. A 8.25% sales tax on $240 = 240 × 0.0825 = $19.80. For income tax, the base is profit, not revenue — never apply the rate to top-line sales or you'll over-reserve.
6. Tying it together — a weekly check
A café owner can answer three questions in percents every week:
- Margin: is this menu item above 60% margin? (covers overhead)
- Growth: is this month vs last month positive?
- Tax: am I setting aside the right rate on each sale?
Running these three percents weekly beats a frantic annual spreadsheet.
7. Common mistakes to avoid
- Confusing margin and markup — margin divides by price; markup divides by cost.
- Forgetting the rate is a decimal — 40% = 0.40.
- Wrong base for growth — always use the prior period, never the current one.
- Ignoring overhead — a 40% margin on cost isn't 40% net profit after rent and labor.
- Applying tax to revenue instead of profit — over-reserves cash you could reinvest.
- Comparing margins across industries — a grocery margin (~3%) and a software margin (~80%) aren't failures, just different models.
8. Quick reference
| You want to… | Formula |
|---|---|
| Price from cost + target margin | Cost ÷ (1 − Margin%) |
| Markup from cost | (Price − Cost) ÷ Cost × 100 |
| Growth vs last year | (New − Old) ÷ Old × 100 |
| Tax owed | Base × Rate% |
FAQ
Q: How do I calculate small-business margin percent? (price − cost) ÷ price × 100.
Q: What is 40% margin on $100 cost? Margin is on price; if price $100 and cost $60, margin = 40%.
Q: How do I compute growth percent? (new − old) ÷ old × 100, using last period as base.
Q: Is margin the same as markup? No — margin uses price as base; markup uses cost.
Q: How is tax a percent for business? Tax $ = revenue (or profit) × the applicable rate percent.
Sources: SBA — Small business finance; Investopedia — Profit margin.
Disclaimer: Illustrative only, not business advice. Real margins must account for overhead, returns, and taxes; consult an accountant. Informational only.
Sources and references
- SBA — Small business financehttps://www.sba.gov/
- Investopedia — Profit marginhttps://www.investopedia.com/terms/p/profitmargin.asp