Almost everyone who sells online can tell you "their margin" on the spot. The problem is that number is almost never the real one: it's the theoretical margin, what you get by subtracting what you paid the supplier from the price. The true margin —the one that reaches your account— is usually half. Here's how to calculate profit margin properly, without fooling yourself.
⚡ The formula
Profit margin (%) = (Selling price − Total cost) ÷ Selling price × 100
You sell at $15,000, your real total cost is $11,000: (15,000 − 11,000) ÷ 15,000 = 26.6% margin. Just like with selling price, the mess isn't in the formula — it's in what you put inside "total cost."
What is profit margin?
Profit margin is the percentage of the selling price you keep as profit after covering costs. It's the metric that tells you whether your business makes money on every sale — or just moves revenue around.
There are three margins you shouldn't confuse:
- Gross margin — price minus product cost. The most optimistic one and the least useful for decisions.
- Contribution margin — price minus ALL variable costs (product, shipping, fees, installments). The one that matters most for deciding what to sell.
- Net margin — what's left after also adding fixed costs (salaries, rent, tools).
Margin vs markup: the confusion that drags your prices down
This mistake is very expensive and very common. Markup is what you add to the cost; margin is what percentage of the final price is profit. They're not the same.
- $10,000 cost + 50% markup = $15,000 price.
- But that $5,000 profit on a $15,000 price is a 33% margin, not 50%.
If you think "I'll add 30% and call it done" by adding it to the cost, your real margin is well below 30%. That's why when you calculate selling price, it's best to start from the margin you want and solve for the price — not the other way around.
Why your real margin is half what you think
This is the heart of it. When you calculate margin "by hand," you almost always use the supplier cost and nothing else. But the real total cost of a sale in LATAM includes a lot of things that get deducted silently:
- Mercado Libre's or your platform's fee.
- Mercado Pago's fee.
- The cost of the interest-free installments you offer.
- Shipping (especially if you offer "free shipping").
- Gross receipts tax (IIBB), perceptions and withholdings.
Add all that up and a "theoretical" 40% margin easily turns into a real margin of 18-22%. It's not that your business is bad: you were looking at the wrong number.
How to know your real margin (without fighting with Excel)
You can calculate real margin product by product in a spreadsheet. It works… until you have 30 SKUs, the fees change, you run promos with installments and the spreadsheet goes stale. Then you're back to deciding with a number that's no longer true.
Escalafy connects your channels and shows you the real margin by product with every cost already subtracted, in real time. You see which product actually makes you money and which one is eating it — without entering anything by hand.
It's the same idea as contribution margin: what matters isn't what you bill, it's what you keep. And for that you need to see the full set of hidden costs.
Frequently asked questions
What's the profit margin formula?
Margin (%) = (Selling price − Total cost) ÷ Selling price × 100. Total cost has to include every variable cost of the sale, not just what you paid the supplier.
How do you calculate a product's profit margin?
Subtract the real total cost (product + shipping + fees + installments + taxes) from the selling price and divide that result by the selling price. What you get, as a percentage, is your real margin on that product.
What's the difference between margin and markup?
Markup is calculated on cost; margin, on the selling price. A 50% markup equals a 33% margin. If you mix them up, you end up setting lower prices than you think.
What's a good profit margin in e-commerce?
It varies a lot by category, but more important than chasing a number is knowing your real margin: what's left after absolutely every cost. A stable real margin of 20-30% is usually healthy in LATAM online retail.
Stop looking at theoretical margin. Escalafy shows you the real margin of every product, with every cost already subtracted, in real time. Try Escalafy free for 7 days, no card required.
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