Profit Margin Calculator
What is Profit Margin?
Profit margin is one of the most important measures of a company's financial health and profitability. It is calculated by finding the net profit as a percentage of the total revenue. Simply put, it represents how many cents of profit your business keeps for every dollar of sales generated.
Whether you are running an e-commerce store, a SaaS startup, or a local retail shop, understanding how to calculate gross profit margin and net profit margin is essential for pricing your products correctly and ensuring long-term sustainability.
The Net Profit Margin Formula
If you want to calculate your margins manually, here are the standard accounting formulas:
Net Profit = Revenue - Cost of Goods Sold (COGS)
Net Profit Margin Formula (%) = (Net Profit / Revenue) × 100
Markup (%) = (Net Profit / Cost) × 100
Frequently Asked Questions
Many business owners confuse margin and markup. Margin is your profit expressed as a percentage of the selling price (Revenue). Markup is your profit expressed as a percentage of your cost price. For example, if you buy a product for $50 and sell it for $100, your markup is 100%, but your profit margin is only 50%. Our markup vs margin calculator displays both metrics side-by-side so you never underprice your goods.
To figure out how to calculate gross profit margin, you simply subtract the Cost of Goods Sold (COGS) from your total revenue to find your Gross Profit. Then, divide that Gross Profit by the total revenue and multiply by 100. Note that gross margin does not include operating expenses like rent or payroll, whereas net margin does.
A "good" margin varies wildly by industry. For example, grocery stores often operate on razor-thin net margins of 1-3%, while software companies might enjoy margins of 20-30%. As a general rule of thumb across all industries, a 10% net profit margin is considered average, 20% is considered highly profitable, and 5% is considered low.
There are generally two ways to increase your profit margin: increase your revenue or decrease your costs. You can increase revenue by raising prices, upselling to existing customers, or expanding your market. You can decrease costs by negotiating better rates with suppliers, reducing waste, or automating processes to save on labor.