Profit Margin Calculator
Enter your revenue and cost to calculate the profit margin percentage of your business or product.
Profit Margin
Frequently Asked Questions (FAQ)
What is profit margin?
Profit margin is the percentage of revenue that exceeds the cost of goods sold. It indicates how much profit a business makes from its sales.
How do I calculate profit margin?
Profit margin (%) = (Revenue - Cost) ÷ Revenue × 100. Enter your revenue and cost into the calculator to get the result instantly.
Why is profit margin important?
Profit margin helps evaluate the profitability and efficiency of a business. Higher margins generally indicate better financial health.
Can this calculator be used for multiple products?
Yes. Simply enter the total revenue and total cost for all products combined to get the overall profit margin.
What Is Profit Margin?
Profit margin is one of the most widely used financial metrics for evaluating a business's profitability. It expresses the percentage of revenue that remains as profit after costs are deducted. A higher profit margin means the company retains more money from each dollar of sales, which indicates efficient cost management and strong pricing power. Investors, lenders, and business owners all rely on profit margin analysis to compare performance across companies, industries, and time periods.
While "profit margin" is often used as a general term, there are actually three distinct types -- gross profit margin, operating profit margin, and net profit margin -- each revealing a different layer of business performance. Understanding all three gives you a complete picture of where money is being made and where it is being lost.
Gross vs. Operating vs. Net Profit Margin
Gross Profit Margin
Gross profit margin measures how much revenue remains after subtracting the direct costs of producing goods or services (Cost of Goods Sold, or COGS). It shows how efficiently a company manufactures or sources its products.
Gross Margin = (Revenue - COGS) / Revenue × 100
Example: Revenue = $500,000, COGS = $300,000 → Gross Margin = ($500,000 - $300,000) / $500,000 × 100 = 40%
Operating Profit Margin
Operating profit margin goes a step further by also subtracting operating expenses such as rent, salaries, marketing, and administrative costs. It reveals how well a company manages its day-to-day overhead.
Operating Margin = (Revenue - COGS - Operating Expenses) / Revenue × 100
Example: Revenue = $500,000, COGS = $300,000, Operating Expenses = $100,000 → Operating Margin = 20%
Net Profit Margin
Net profit margin is the bottom line. It accounts for all expenses including taxes, interest, and one-time charges. This is the percentage of revenue that a company actually keeps as profit.
Net Margin = Net Income / Revenue × 100
Example: Revenue = $500,000, Net Income = $50,000 → Net Margin = 10%
Markup vs. Profit Margin
Markup and profit margin are related but measure different things. Markup is the percentage added to the cost to arrive at the selling price, while profit margin is the percentage of the selling price that is profit. The formulas produce different numbers even when the underlying dollars are the same.
Markup Formula
Markup = (Price - Cost) / Cost × 100
Cost = $60, Price = $100 → Markup = 66.7%
Margin Formula
Margin = (Price - Cost) / Price × 100
Cost = $60, Price = $100 → Margin = 40%
A common mistake is confusing the two. A 50% markup does not equal a 50% margin. If you buy a product for $100 and mark it up 50%, you sell it for $150. Your profit margin on that sale, however, is only 33.3% ($50 / $150). Always clarify which metric you are using when discussing pricing with partners, suppliers, or stakeholders.
Average Profit Margins by Industry
Profit margins vary dramatically across industries. Capital-intensive industries like airlines and restaurants typically operate on thin margins, while technology and financial services companies enjoy much wider margins. The table below provides approximate average net profit margins for common industries.
| Industry | Gross Margin | Net Margin |
|---|---|---|
| Software / SaaS | 70 - 85% | 20 - 35% |
| Financial Services | 60 - 70% | 15 - 30% |
| Healthcare / Pharma | 60 - 80% | 10 - 25% |
| Manufacturing | 25 - 40% | 5 - 12% |
| Retail (General) | 25 - 35% | 2 - 6% |
| Restaurants / Food Service | 55 - 65% | 3 - 9% |
| Construction | 15 - 25% | 2 - 7% |
| Airlines / Transportation | 40 - 55% | 1 - 5% |
| Grocery / Supermarkets | 25 - 30% | 1 - 3% |
Margins are approximate industry averages and can vary significantly by company size, geography, and business model.
Markup to Margin Conversion Table
Markup and profit margin are not interchangeable. Use this reference table to convert between the two — a common need when pricing products or verifying supplier quotes.
| Markup % | Profit Margin % | Example (Cost $100) |
|---|---|---|
| 10% | 9.09% | $110 sell price |
| 20% | 16.67% | $120 sell price |
| 25% | 20% | $125 sell price |
| 33% | 24.81% | $133 sell price |
| 50% | 33.33% | $150 sell price |
| 67% | 40.12% | $167 sell price |
| 100% | 50% | $200 sell price |
| 150% | 60% | $250 sell price |
| 200% | 66.67% | $300 sell price |
| 300% | 75% | $400 sell price |
Formula: Margin = Markup / (1 + Markup). A 100% markup always equals exactly 50% margin.
How to Improve Your Profit Margin
Profit margin can be improved from two directions: increasing revenue without proportionally increasing costs, or reducing costs without sacrificing revenue. In practice, the most effective strategies combine both.
1. Raise Prices Strategically
Even a 5% price increase on a 20% margin product can nearly double net profit. Test price increases on your best-selling products first and monitor volume impact. Premium positioning, bundling, and annual price adjustments are common tactics.
2. Reduce Cost of Goods Sold (COGS)
Negotiate better supplier terms, order in larger volumes for discounts, reduce waste in production, and audit your supply chain for inefficiencies. A 10% reduction in COGS on a 30% gross margin improves margin by roughly 3 percentage points.
3. Cut Underperforming Products or Services
Low-margin products consume resources that could be directed at high-margin offerings. Regularly reviewing your product mix and discontinuing or repricing thin-margin items improves overall portfolio margin.
4. Reduce Operating Expenses
Automate repetitive tasks, renegotiate leases and vendor contracts, and review software subscriptions. Operating leverage — keeping fixed costs stable as revenue grows — is one of the most powerful drivers of margin expansion over time.
5. Focus on Customer Retention
Acquiring a new customer costs 5–7× more than retaining an existing one. Improving customer lifetime value through loyalty programs, upsells, and service quality increases revenue without a proportional increase in acquisition costs.