Calculate markup percentage, selling price, and gross profit margin from cost or price inputs.
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A Texas-based freelance graphic designer earns $140,000 net profit/year from client work. She's evaluating whether to stay as a sole proprietor, form an LLC, or elect S-Corp status to reduce self-employment taxes.
Takeaway: S-Corp saves $8,300/year but adds ~$1,500-$3,000 in accounting fees (payroll, extra returns). Break-even is around $80-90K net profit. Below that, the overhead eats the savings. Texas has no state income tax, so the benefit is purely federal SE savings.
LLC annual fees range from $0 (Ohio) to $800 minimum (California, even for zero-revenue LLCs). Delaware C-Corp is standard for VC-backed companies but adds registered agent costs (~$300/yr) for out-of-state entities. The "best" structure is state-specific.
S-Corps cannot have more than 100 shareholders, cannot have non-US shareholders, and cannot have corporate shareholders. Violating these rules (e.g., adding a foreign investor) terminates S-Corp status retroactively, potentially creating a large unexpected tax event.
The IRS requires S-Corp owner-employees to pay themselves a "reasonable salary" before taking distributions. There is no fixed formula — the IRS looks at industry benchmarks, duties, and hours worked. Setting the salary too low is a common audit trigger for S-Corps.
Business break-even models track revenue vs. direct costs. They rarely factor in the owner's time as a cost. If you're working 60 hours/week at imputed $50/hour, your "profitable" business may be paying you $12/hour after the opportunity cost calculation.
Break-Even CalculatorA service business valued on EBITDA multiples (2-4×) gets a very different number than one valued on SDE (seller's discretionary earnings) or discounted cash flow. Buyers and sellers typically use different methods to argue their preferred price. This calculator uses a single method.
Business Valuation CalculatorBased on your inputs
on cost
| Selling Price | $70.00 |
|---|---|
| Profit per Unit | $20.00 |
| Markup % | 40.00% |
| Gross Margin % | 28.57% |
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Markup is profit divided by cost. Margin is profit divided by selling price. A 50% markup on $10 cost = $15 price; the margin is 33%.
Retail typically uses 50–100% markup. Restaurants use 200–400%. Services range widely. Factor in overhead and competition.
Selling Price = Cost × (1 + Markup%). For a 40% markup on $25: $25 × 1.40 = $35.
Markup % = (Profit / Cost) × 100. Margin % = (Profit / Price) × 100. They are related but not the same.
Margin = Markup / (1 + Markup). A 50% markup equals 33.3% margin. A 100% markup equals 50% margin. Margin is always lower than markup for the same product.
Restaurants typically mark up food 200-400% (3-5x cost). Beverages are marked up 300-500%. A dish costing $5 in ingredients sells for $15-$25. This covers labor, rent, utilities, and profit.
Keystone pricing is a 100% markup (doubling the wholesale cost). A $25 wholesale item sells for $50 retail. It is a simple rule of thumb commonly used in retail, though many products require higher or lower markups.
Cost = Selling Price x (1 - Margin%). For a $100 product with 40% margin: Cost = $100 x (1 - 0.40) = $60. The profit is $40 and the markup is 66.7%.
Margin is better for financial analysis since it shows profit as a percentage of revenue. Markup is easier for setting prices from cost. Use both: calculate markup for pricing and track margin for profitability.
Determine your fully loaded hourly cost including salary, benefits, overhead, and taxes. Apply your desired markup percentage to set the billing rate. Service businesses typically use 50-150% markup to cover indirect costs and profit.
Markup % = (Selling Price − Cost) / Cost × 100
Margin % = (Selling Price − Cost) / Selling Price × 100
Selling Price = Cost × (1 + Markup%)
Every formula on this page traces to a federal agency, central bank, or peer-reviewed institution. We cite the rule-makers, not secondhand blogs.
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Calculations are for educational purposes only. Consult a qualified financial advisor for personalized advice.