Professional services
Net Profit Margin Calculator
Works net profit margin, which is what is left after everything including the owner's wage.
Result
Markup is measured against your cost, margin against the price you charge. A 50% markup is a 33.3% margin, not a 50% one. Pricing off the wrong one is the most common way a job that looked profitable turns out not to have been. Gross profit is what is left after the cost of doing the job. Overhead comes out of that: the building, the office wages, the vans, insurance, software and advertising. A healthy gross margin still loses money if overhead is larger.
Get a Free Business AuditHow the calculation works
Net profit divided by revenue, where net profit is revenue less direct costs less overhead. The gap between gross and net margin is the overhead load, and comparing the two tells you whether a thin result comes from pricing or from the cost of being open, which need opposite responses.
What moves the number
- Gross margin, which sets the ceiling.
- Overhead level and whether revenue is growing against it.
- Owner compensation, and whether it sits above the line.
- One-off items, which distort a single period.
Where this one goes wrong
A business reporting net profit while paying the owner nothing for full-time work is not showing profit, it is showing unpaid labour. Put a market wage for the owner's actual role above the line before calling the remainder profit, because that is the figure that tells you whether the business is worth more than the job. One-off items are the other distortion, and a single period containing an unusual gain or cost should be read with that stripped out.
Before you quote
- Pay the owner a market wage before calling the remainder profit.
- Compare gross and net margin to locate the problem.
- Strip one-off items before reading a single period.
Questions
About this calculator
Should the owner's wage come out before net profit?
Yes, at a market rate for the work actually done. A business showing profit while paying the owner nothing for full-time work is showing unpaid labour, and that distinction decides whether the business is worth more than the job it provides.
My net margin is thin. Where do I look?
Compare it against gross margin. A healthy gross and a thin net is an overhead problem; a thin gross means pricing or production. They need opposite responses, and a single net figure tells you something is wrong without telling you which.
Is one period's net margin meaningful?
Only with one-off items stripped out and seasonality considered. A quarter containing an unusual gain or a large one-time cost tells you little about the underlying business, which is why the trend across comparable periods is worth more than any single figure.
The formula
margin = (price - cost) / price; markup = (price - cost) / cost
Put this calculator on your site
Free to embed. Paste this where you want it to appear. It stays up to date automatically because it loads from BDEVY.
Please keep the attribution line. It is the only thing we ask in return.
How to use this calculator
- Price charged ($). Enter your own figure; the page starts at $2,600.
- Direct cost ($). Enter your own figure; the page starts at $1,100.
The result updates as you type, so you can try a figure, see what it does to gross margin, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Price charged | $2,600 |
| Direct cost | $1,100 |
What comes out
| Result | Value |
|---|---|
| Gross margin main result | 57.7% |
| Gross profit | $1,500 |
| Same thing as a markup | 136% |
That job earns $1,500 of gross profit, a 57.7% margin. The same job described as a markup is 136%.
How sensitive the answer is
Holding everything else steady and changing only price charged, this is what happens to gross margin. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Price charged ($) | Gross margin |
|---|---|
| $1,300 | 15.4% |
| $1,950 | 43.6% |
| $2,600 example above | 57.7% |
| $3,900 | 71.8% |
| $5,200 | 78.8% |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Price charged ($)
- A money amount, starting at $2,600.
- Direct cost ($)
- A money amount, starting at $1,100.
What the results tell you
| Result | What it is |
|---|---|
| Gross margin | The headline result. A percentage. |
| Gross profit | A money figure. |
| Same thing as a markup | A percentage. |
Estimating is the easy part
The jobs you never hear about cost more than the ones you mis-measure. BDEVY builds the marketing, systems and automation that bring them in.