Profit Margin Calculator

Calculate gross, operating, and net profit margins. Analyze your business profitability with our easy-to-use calculator.

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Your Results

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Profit Margin
0%
Profit / Revenue
Profit
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Revenue - Cost
Markup
0%
Profit / Cost

Key Takeaways

  • Profit Margin measures how much profit you make relative to revenue
  • Margin vs Markup: Margin = Profit/Revenue; Markup = Profit/Cost
  • A 40% margin means 40 cents profit per dollar of sales
  • Industry benchmarks: Retail 2-5%, Software 20-40%, Finance 15-25%
  • Higher margins indicate better efficiency and pricing power

Understanding Profit Margins

Profit margin measures how much profit a company makes relative to its revenue. It's expressed as a percentage and helps evaluate business efficiency and profitability. Understanding your margins is crucial for pricing decisions, cost management, and business strategy.

Types of Profit Margins

Gross Profit Margin

Gross Margin = (Revenue - COGS) / Revenue x 100

Measures profitability after direct production costs. Shows how efficiently you produce goods or services. A higher gross margin means you have more money left over to cover operating expenses and generate profit.

Operating Profit Margin

Operating Margin = Operating Income / Revenue x 100

Includes operating expenses like rent, utilities, and salaries. Shows operational efficiency and how well you manage day-to-day costs. This margin reveals the core profitability of your business operations.

Net Profit Margin

Net Margin = Net Income / Revenue x 100

The "bottom line" after all expenses, interest, and taxes. Shows overall profitability and what percentage of revenue translates to actual profit for shareholders.

Margin vs Markup

Metric Formula Example (Cost $60, Price $100)
Margin Profit / Revenue $40 / $100 = 40%
Markup Profit / Cost $40 / $60 = 66.67%

Margin is based on selling price; markup is based on cost. A 50% margin equals a 100% markup. Always clarify which metric you're discussing to avoid pricing errors.

Industry Benchmarks

  • Retail: 2-5% net margin
  • Manufacturing: 5-10% net margin
  • Software/SaaS: 20-40% net margin
  • Financial Services: 15-25% net margin
  • Healthcare: 5-15% net margin

Improving Profit Margins

  • Increase prices strategically based on value delivered
  • Reduce cost of goods sold through supplier negotiations
  • Cut operating expenses without sacrificing quality
  • Improve operational efficiency and productivity
  • Focus on high-margin products and services
  • Automate repetitive tasks to reduce labor costs