Business
Profit Margin Calculator
Works profit margin, where three different margins answer three different questions.
Result
Whether this is gross or net margin depends on what you put in the cost field. Direct costs only gives gross margin; adding overhead and admin gives net.
Get a Free Business AuditHow the calculation works
Profit divided by revenue, expressed as a percentage. Which profit decides what the figure means: gross margin uses revenue less cost of goods sold, operating margin takes operating expenses out as well, and net margin takes everything including interest and tax. The three move independently and a margin quoted without saying which is not comparable to anything.
What moves the number
- Which profit figure is in the numerator.
- What is classified as cost of goods sold against overhead.
- Pricing and discounting.
- Revenue mix, where lines have different margins.
Where this one goes wrong
Moving a cost between cost of goods sold and overhead changes gross margin dramatically without changing the business at all, which means any comparison across periods or against a benchmark needs the same definition on both sides. Fix the definition and hold it. Mix is the other thing that moves a blended margin: a business whose margin fell may simply be selling more of its lower-margin line, which is a different problem from prices falling.
Before you quote
- State which margin you are quoting.
- Keep the cost classification consistent across periods.
- Check mix before concluding that margins have fallen.
Questions
About this calculator
Which profit margin should I use?
Gross margin for pricing and production questions, operating margin for how well the business runs, net margin for what the owners keep. They move independently, and a margin quoted without saying which is not comparable to anything.
Why did my gross margin change?
Either prices, costs, mix, or how costs are classified. Moving a cost between cost of goods sold and overhead changes the margin without changing the business, which is why a consistent definition matters more than the figure itself.
My margin fell but prices did not. Why?
Probably mix. A business selling more of its lower-margin line shows a falling blended margin with every individual price unchanged, and that is a completely different problem from price erosion, with a different fix.
The formula
margin = (revenue − cost) ÷ revenue × 100
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How to use this calculator
- Revenue / selling price ($). Enter your own figure; the page starts at $2,500.
- Cost of goods or delivery ($). Enter your own figure; the page starts at $1,600.
The result updates as you type, so you can try a figure, see what it does to profit 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 |
|---|---|
| Revenue / selling price | $2,500 |
| Cost of goods or delivery | $1,600 |
What comes out
| Result | Value |
|---|---|
| Profit margin main result | 36.00% |
| Profit | $900 |
| Equivalent markup on cost | 56.25% |
| Cost as a share of revenue | 64.00% |
A 2,500 sale costing 1,600 delivers $900 profit: a 36.00% margin, which is a 56.25% markup on cost.
How sensitive the answer is
Holding everything else steady and changing only revenue / selling price, this is what happens to profit margin. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Revenue / selling price ($) | Profit margin |
|---|---|
| $1,250 | -28.00% |
| $1,875 | 14.67% |
| $2,500 example above | 36.00% |
| $3,750 | 57.33% |
| $5,000 | 68.00% |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Revenue / selling price ($)
- A money amount, starting at $2,500.
- Cost of goods or delivery ($)
- A money amount, starting at $1,600.
What the results tell you
| Result | What it is |
|---|---|
| Profit margin | The headline result. A percentage. |
| Profit | A money figure. |
| Equivalent markup on cost | A percentage. |
| Cost as a share of revenue | A percentage. |
Where these figures usually mislead
Business calculations assume the inputs are steady. Seasonality, a few large customers, and slow payment all break that assumption. A figure that looks healthy annually can still leave you short in a given month.
Keep going
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