Gross margin, profit and required price.
Margin is the share of every sale you keep as profit. This profit margin calculator works it out three ways: the gross margin on a product from its cost and price, the selling price you need to hit a target margin, and the net profit margin for a whole business once overheads and taxes are taken off.
Quick answer: profit margin = (revenue − cost) ÷ revenue × 100. If you sell an item for $100 that cost you $70, your profit is $30 and your gross margin is 30%. To get a 40% margin on a $70 cost, the price must be 70 ÷ (1 − 0.40) = $116.67.
How to Use the Profit Margin Calculator
Find margin: enter the cost and the selling price. You get the gross margin, the gross profit and the equivalent markup.
Price for a target margin: enter the cost and the margin you want. You get the selling price, the profit and the equivalent markup.
Net profit margin: enter revenue, cost of goods sold, operating expenses, and optionally interest and taxes. You get the net, gross and operating margins and the net profit.
Profit Margin Formulas
- Gross margin = (Revenue − Cost of goods sold) ÷ Revenue × 100
- Operating margin = (Gross profit − Operating expenses) ÷ Revenue × 100
- Net profit margin = Net profit ÷ Revenue × 100
- Price for a target margin = Cost ÷ (1 − Target margin)
Profit Margin Examples
Gross margin on one product. Cost $70, price $100.
Profit = $30. Margin = 30 ÷ 100 = 30%. The markup on the same sale is 30 ÷ 70 = 42.86%.
Setting a price for a 40% margin. Cost $70.
Price = 70 ÷ 0.60 = $116.67. Profit = $46.67. The equivalent markup is 66.67%.
Net profit margin for a business.
| Line | Amount | Margin |
|---|---|---|
| Revenue | $250,000 | |
| Cost of goods sold | −$140,000 | |
| Gross profit | $110,000 | 44% |
| Operating expenses | −$60,000 | |
| Operating profit | $50,000 | 20% |
| Interest and taxes | −$15,000 | |
| Net profit | $35,000 | 14% |
Margin vs Markup
Both describe the same profit, but margin divides by the price and markup divides by the cost, so margin is always the smaller number.
| Margin | Equivalent markup |
|---|---|
| 20% | 25% |
| 30% | 42.86% |
| 40% | 66.67% |
| 50% | 100% |
| 60% | 150% |
A common and costly mistake is adding a 40% markup when you need a 40% margin. That gives only a 28.6% margin. To set prices from your cost using markup, use the markup calculator.
What Is a Good Profit Margin?
It depends heavily on the industry. Grocery stores often run on thin net margins of a few percent, while software and consulting businesses can have much higher ones. Compare your margin with businesses like yours, and track it over time. A falling gross margin often means costs are rising faster than prices.
Ways to Improve Your Margin
- Raise prices where customers will accept it. Use the target margin mode to see what price you need.
- Lower the cost of goods: negotiate with suppliers, buy in bulk or reduce waste.
- Cut overheads to improve the operating and net margins.
- Watch discounts. A 10% discount on a 30% margin product removes a third of the profit. The discount calculator shows the new price.
Profit Margin FAQs
What is the difference between gross and net profit margin?
Gross margin only takes off the direct cost of the product. Net margin also takes off rent, wages, marketing, interest, taxes and every other expense.
Can profit margin be more than 100%?
No. Margin is profit as a share of the price, and profit can never be more than the price. Markup, by contrast, can be over 100%.
Can margin be negative?
Yes. A negative margin means the item or business is losing money: costs are higher than revenue.
Should sales tax or VAT be included in revenue?
No. Use revenue before tax, because the tax is collected for the government, not kept as income. The VAT calculator and sales tax calculator split tax out of a price.
How we checked this page: every margin, price and markup in the examples and tables was worked by hand and matches the calculator.