Profit Margin Calculator
Profit margin is a key financial metric that measures how much of every dollar in revenue a business keeps as profit after covering its costs. Expressed as a percentage, it reveals the efficiency of a company in converting sales into actual earnings. There are several types — gross margin, operating margin, and net margin — each offering a different lens on profitability.
Whether you are pricing a new product, evaluating a business opportunity, or analyzing competitor performance, understanding profit margins helps you make smarter financial decisions. A healthy margin varies by industry, but tracking it over time is one of the best ways to monitor the financial health of any venture.
How it works
Profit Margin (%) = ((Revenue - Cost) / Revenue) × 100. Gross margin uses cost of goods sold, while net margin accounts for all expenses including taxes and overhead.
Use cases
- Setting competitive yet profitable product prices
- Comparing profitability across different products or services
- Evaluating business health and operational efficiency
- Preparing financial reports and investor presentations
Frequently asked questions
How do I calculate profit margin?
Use the formula Profit Margin (%) = ((Revenue − Cost) / Revenue) × 100. If you sell a product for 200 that costs 150, the margin is ((200 − 150) / 200) × 100 = 25%. Note that the divisor is revenue, not cost — that is what distinguishes margin from markup.
What is the difference between margin and markup?
Margin is profit as a percentage of the selling price, while markup is profit as a percentage of the cost. A product bought for 100 and sold for 150 has a 50% markup but only a 33.3% margin. For the same numbers, markup is always the higher percentage, so mixing them up leads to underpricing.
What is the difference between gross margin and net margin?
Gross margin only subtracts the cost of goods sold from revenue, showing how profitable the product itself is. Net margin subtracts all expenses — including overhead, salaries, and taxes — showing what the business actually keeps from each unit of revenue. Net margin is always lower than gross margin and is the better indicator of overall business health.
What is a good profit margin?
It varies widely by industry: supermarkets often operate on net margins of 1–3%, while software companies can exceed 20%. As a general benchmark, a 10% net margin is frequently considered average, 20% high, and 5% low. Comparing your margin against direct competitors and tracking its trend over time matters more than any universal target.
How do I set a price based on a desired profit margin?
Divide the cost by (1 − desired margin / 100): Price = Cost / (1 − Margin / 100). For a product costing 60 with a target margin of 40%, the price is 60 / 0.6 = 100. A common mistake is multiplying cost by (1 + margin), which actually applies a markup and yields a lower margin than intended.