Use this profit margin calculator to find out profit margin as a percentage as well as profit in dollars by entering cost and revenue.
If you already know your margin, you can calculate other values such as cost, revenue and profit by entering the margin value first.
When using Advanced Mode, you can also enter a markup percentage and calculate margin using that.
How to Calculate Profit Margin
- Find out your revenue, or selling price. For example, $150.
- Find out your cost of goods sold, for example $100.
- Subtract your costs from your revenue to calculate the gross profit. For example, $150-$100 = $50.
- Divide your gross profit by revenue and multiple by 100 to express this as a percentage. For example, $50/$150 = 0.33. 0.33 * 100 = 33%
- In this example, your profit margin would be 33%
The basic profit margin formula is as follows:
Profit margin = 100 * (Sales – Costs) / Sales
Gross Profit Margin vs Net Profit Margin
Gross profit margin calculates margin using the cost of goods sold (COGS). Net profit margin calculates it by looking at all business expenses, which could include things such as debt payments and operating expenses as well as just the cost of goods sold.
The two formulas are shown below:
Gross profit margin = 100 * (Net Sales – COGS) / Net Sales
Net profit margin = 100 * (Total Revenue – Total Expenses) / Total Revenue
Both values are expressed as percentages.
Both profit margin formulas work in the same way, the only difference is that gross margin just looks at sales and cost of goods sold, whereas net margin looks at all expenses and revenue.
What Is a Good Profit Margin?
What is considered a ‘good’ profit margin depends on the industry and can change from year to year depending on macroeconomic trends.
According to this NYU report, the average net margin for US companies in 2020 was 5.05%, and the average gross margin was 36.22%.
Based on that report, the industries with the highest margins are banking, financial services, software and pharmaceuticals, all of which had gross profit margins over 60% and net profit margins over 10%.
What Is Operating Profit Margin?
Operating profit margin is a way of calculating profit margin that takes into account the cost of goods sold (COGS) as well as operational costs, but does not include things like taxes and interest charges.
The formula for calculating operating profit margin is as follows:
Operating Profit Margin = Operating Profit / Total Revenue
Operating profit is the profit left over after subtracting relevant operating expenses, cost of goods sold, depreciation and amortization.
Wholesale and Retail Prices
Wholesale prices are typically around 50% of retail prices. If you are retailer and you buy each product wholesale for $10, you may want to charge $20 to your customers. This would equate to a 100% markup, and a 50% gross profit margin.
Here is how to calculate markup:
Markup percentage = 100 * (Sales Price – Unit Cost) / Unit Cost
In the example above, the sales price is $20 and the unit cost is $10, so the markup is: 100 * (20-10)/10 = 100%