Profit Margin Calculator
Total income from sales
Direct costs to produce goods
Profit Margin Results
Gross Profit = Revenue – Cost of Goods Sold
Gross Margin = (Gross Profit ÷ Revenue) × 100
Enter revenue and costs to calculate profit margin
Results will appear here instantly
Common Profit Margin Calculations
How the Profit Margin Calculator Works
Profit margin is one of the most important metrics for any business. It tells you what percentage of your revenue is actual profit after accounting for costs. Understanding your margins helps with pricing decisions, cost control, and overall business strategy.
This profit margin calculator eliminates the guesswork from financial analysis. Simply enter your revenue and costs, and instantly see your gross profit margin, net profit margin (with expenses), markup percentage, and breakeven analysis. The visual breakdown makes it easy to understand where your money is going.
Formula: Gross Profit Margin = ((Revenue – Cost of Goods Sold) ÷ Revenue) × 100. Net Profit Margin = ((Revenue – COGS – Operating Expenses) ÷ Revenue) × 100. Markup = ((Revenue – COGS) ÷ COGS) × 100.
Understanding Different Types of Profit Margins
Businesses use several types of profit margins to analyze performance at different levels:
| Margin Type | What It Measures | Typical Range | Good For |
|---|---|---|---|
| Gross Profit Margin | Production efficiency after direct costs | 20-60% | Manufacturing, retail, product businesses |
| Operating Profit Margin | Core business efficiency including overhead | 10-30% | Service businesses, consulting |
| Net Profit Margin | Overall profitability after all expenses | 5-20% | All businesses, investor analysis |
| EBITDA Margin | Operating cash flow before interest, taxes, depreciation | 15-40% | High-growth companies, acquisitions |
What Makes a Good Profit Margin?
Profit margin benchmarks vary significantly by industry. What’s considered excellent in one industry might be terrible in another:
| Industry | Average Gross Margin | Average Net Margin | Notes |
|---|---|---|---|
| Software/SaaS | 70-90% | 15-25% | High R&D and marketing costs |
| Retail | 25-35% | 2-5% | High overhead, thin margins |
| Restaurants | 60-70% | 3-5% | High labor and rent costs |
| Manufacturing | 30-50% | 5-10% | Capital intensive, volume driven |
| Consulting | 80-95% | 10-20% | Low COGS, high labor costs |
Common Profit Margin Calculation Scenarios
Scenario 1: You sell handmade furniture. Materials cost $200 per piece, and you sell for $500. Revenue = $500, COGS = $200. Gross profit = $300. Gross margin = 60% (300 ÷ 500). Markup = 150% (300 ÷ 200). Each $1 of revenue generates $0.60 gross profit.
Scenario 2: A restaurant has monthly revenue of $50,000. Food costs are $15,000 (COGS). Labor, rent, utilities total $25,000 (expenses). Gross margin = 70% ((50,000 – 15,000) ÷ 50,000). Net margin = 20% ((50,000 – 15,000 – 25,000) ÷ 50,000). Breakeven revenue = $40,000.
Scenario 3: Software company with $1,000,000 revenue. Server costs and customer support (COGS) = $100,000. R&D, marketing, salaries (expenses) = $700,000. Gross margin = 90% (excellent). Net margin = 20% (very good for software).
Scenario 4: Retail store selling imported goods. Revenue = $100,000. Cost of inventory = $70,000. Rent, staff, marketing = $25,000. Gross margin = 30% (low for many industries but average for retail). Net margin = 5% (typical for retail). Needs high volume to succeed.
Pro Tip: Compare your margins to industry benchmarks. A 15% net margin might be terrible for software but excellent for grocery stores. Use this calculator to see how changes in pricing or costs affect your margins instantly.
Margin vs. Markup: What’s the Difference?
Many business owners confuse margin and markup, but they’re calculated differently and serve different purposes:
| Aspect | Profit Margin | Markup |
|---|---|---|
| Calculation | (Profit ÷ Revenue) × 100 | (Profit ÷ Cost) × 100 |
| Base Amount | Based on selling price | Based on cost |
| Purpose | Measures profitability efficiency | Sets selling price from cost |
| Example: Cost $60, Sell $100 | 40% margin ($40 profit ÷ $100 revenue) | 67% markup ($40 profit ÷ $60 cost) |
| Which is Higher? | Margin percentage is always lower | Markup percentage is always higher |
This calculator shows both margin and markup percentages. Use margin to analyze profitability, use markup to set prices from costs.
Frequently Asked Questions
What’s a good profit margin for a small business?
For most small businesses, a net profit margin of 10-20% is good, 5-10% is average, and below 5% needs improvement. However, this varies by industry. Service businesses often have higher margins than product businesses due to lower COGS.
How do I improve my profit margin?
Increase prices (if market allows), reduce COGS (better supplier deals, efficiency), reduce operating expenses, increase sales volume (spreads fixed costs), or change product mix to higher-margin items. This calculator helps you test different scenarios.
Should I calculate margin on gross or net sales?
Always calculate on net sales (after returns, discounts, allowances) for accurate profitability analysis. Gross sales (before returns) can make margins appear higher than they really are.
What’s included in Cost of Goods Sold (COGS)?
COGS includes direct costs: raw materials, direct labor, manufacturing overhead, shipping to produce goods. For services, it might include contractor costs or specific project expenses. Not included: marketing, rent, administrative salaries.
How often should I calculate my profit margin?
Monthly at minimum for active businesses. Weekly for high-volume or seasonal businesses. Regular tracking helps spot trends early. Use this calculator to quickly check margins on individual products, projects, or time periods.
What’s the difference between profit margin and profit?
Profit is a dollar amount ($10,000). Profit margin is a percentage (20%). Margin shows efficiency: how much profit you make per dollar of revenue. Two businesses with $10,000 profit are very different if one has $50,000 revenue (20% margin) vs $200,000 revenue (5% margin).
Common Mistakes to Avoid
Mistake 1: Confusing margin with markup. A 50% markup is not a 50% margin. If you want a 50% margin on a $60 cost, you need to sell for $120, not $90.
Mistake 2: Not including all costs in COGS. For accurate gross margin, include all direct costs: materials, direct labor, freight, packaging, and any direct overhead.
Mistake 3: Calculating margin on the wrong revenue figure. Use net revenue after returns and discounts, not gross sales before deductions.
Mistake 4: Comparing margins across different industries without context. A 10% margin might be terrible for consulting but excellent for grocery retail.
Mistake 5: Forgetting about volume. A business with 5% margin on $10M revenue ($500K profit) might be healthier than one with 20% margin on $1M revenue ($200K profit).
Table of Common Profit Margin Calculations
| Revenue | COGS | Gross Profit | Gross Margin | Markup |
|---|---|---|---|---|
| $100 | $60 | $40 | 40% | 67% |
| $500 | $350 | $150 | 30% | 43% |
| $1,000 | $400 | $600 | 60% | 150% |
| $2,500 | $1,500 | $1,000 | 40% | 67% |
| $10,000 | $7,000 | $3,000 | 30% | 43% |
Breakeven Analysis: When Do You Start Making Money?
Breakeven analysis tells you how much revenue you need to cover all costs. This calculator automatically calculates your breakeven point. The formula is simple: Breakeven Revenue = Total Costs ÷ (1 – (COGS ÷ Revenue)).
For example, if your COGS are 60% of revenue and expenses are $10,000, you need $25,000 revenue to breakeven (10,000 ÷ (1 – 0.60) = 25,000). Every dollar above $25,000 contributes to profit at your margin rate.
Understanding your breakeven point helps with pricing, cost control, and sales targets. If you’re consistently below breakeven, you need to increase prices, reduce costs, or increase volume.
Important: Regularly update your breakeven calculations as costs change. Fixed costs (rent, salaries) and variable costs (materials, shipping) both affect your breakeven point. Use this calculator to model different scenarios before making pricing or cost decisions.
Disclaimer
This calculator provides estimates for informational purposes only. Actual profit margins may vary based on accounting methods, tax considerations, and specific business circumstances. Always consult with a qualified accountant or financial advisor for business decisions. Industry benchmarks are averages and may not reflect your specific market conditions. Margin calculations assume linear relationships that may not hold at different volumes or market conditions.
Profit Margin Calculation Results
Date:
Calculation Type:
Revenue:
Cost of Goods Sold:
Operating Expenses:
Gross Profit:
Net Profit:
Gross Margin:
Net Margin:
Markup Percentage:
Breakeven Revenue:
Generated by SabiCalculator Profit Margin Calculator