📊 Finance · Profit Margin

How to Calculate
Profit Margin

Calculate gross, net, and operating profit margins. Understand what percentage of revenue you actually keep.

Three Types of Profit Margin

Gross Margin
(Revenue – COGS) / Revenue × 100

Profit after cost of goods

Operating Margin
Operating Income / Revenue × 100

Profit after operating expenses

Net Margin
Net Income / Revenue × 100

Final profit after all expenses

💡 Which to use? Net margin shows overall profitability. Gross margin shows production efficiency. Operating margin shows operational efficiency.

Profit Margin Calculator

Gross Profit Margin
40.0%
Of revenue kept after COGS
Gross Profit
$40,000
COGS %
60.0%
Net Profit Margin
18.0%
Final profit as % of revenue
Net Profit
$18,000
Expense Ratio
82.0%
Required Selling Price
$83.33
To achieve target margin
Profit per Unit
$33.33
Markup %
66.7%

Step-by-Step: Gross Margin

1

Calculate gross profit

Gross Profit = Revenue – Cost of Goods Sold. Example: $100,000 – $60,000 = $40,000

2

Divide by revenue

$40,000 ÷ $100,000 = 0.40

3

Multiply by 100

0.40 × 100 = 40% gross margin

4

Compare to industry benchmarks

Retail: 25-50%. Software: 60-80%. Restaurants: 60-70% gross but very low net. Context matters!

Worked Examples

Retail Store

Revenue: $500,000
COGS: $300,000
Gross profit: $200,000
40% gross margin

SaaS Company

Revenue: $1,000,000
COGS: $150,000
Gross profit: $850,000
85% gross margin

Restaurant

Revenue: $800,000
Total costs: $760,000
Net profit: $40,000
5% net margin

Product Pricing

Cost: $30/unit
Want 50% margin
Price = 30/(1-0.5)
Sell at $60

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Frequently Asked Questions

What is a good profit margin? ▾
It depends heavily on industry. Net margins: retail 2-5%, restaurants 3-9%, tech/software 15-25%, healthcare 10-15%. Always compare to your specific industry average.
What is the difference between margin and markup? ▾
Margin = profit ÷ revenue. Markup = profit ÷ cost. A 50% markup on a $10 item gives a $15 price (33% margin). They sound similar but produce different numbers — always clarify which is being used.
How do I calculate selling price from desired margin? ▾
Selling Price = Cost ÷ (1 – Margin%). Example: cost $40, want 30% margin → $40 ÷ 0.70 = $57.14 selling price.
Can profit margin be over 100%? ▾
No — profit margin is capped at 100% (if costs were zero). However, markup can exceed 100%. A $10 item sold for $25 has a 150% markup but only a 60% margin.