Profit Margin Calculator

Profit margin is the percentage of revenue that remains as profit after deducting costs. Gross Margin = (Revenue − COGS) ÷ Revenue × 100. For example, if revenue is $10,000 and COGS is $6,000, the gross profit is $4,000 and the gross margin is 40%. Net margin also subtracts operating expenses from the equation.

Gross margin measures profitability after subtracting only the direct costs of production (COGS), while net margin subtracts all expenses including operating costs, taxes, and interest. Gross margin tells you how efficiently you produce your product; net margin tells you the overall profitability of the business.

Profit margin is calculated as a percentage of revenue: (Profit ÷ Revenue) × 100. Markup is calculated as a percentage of cost: (Profit ÷ Cost) × 100. For a product costing $60 and selling for $100: Margin = 40% but Markup = 66.7%. Confusing the two is a common pricing mistake.

It depends on the industry. Retail typically achieves 20–50% gross margin; Software / SaaS businesses commonly reach 60–85% gross margin; Restaurants run 60–75% gross margin but have high operating costs; Manufacturing averages 25–45% gross margin; Professional services (consulting, law) can achieve 25–60% gross margin. Always compare within your industry, as benchmarks vary widely.

Enter your desired selling price as Revenue and your production or purchase cost as COGS. The calculator instantly shows your gross margin and markup. Alternatively, enter your COGS and use the Target Gross Margin field to find out what revenue (selling price) you need to achieve your desired margin. This is useful for setting minimum prices on new products.

COGS (Cost of Goods Sold) includes all direct costs tied to producing a product or service: raw materials, direct labor, manufacturing overhead, and shipping to the customer. It does NOT include indirect costs like office rent, marketing, or administrative salaries — those belong in Operating Expenses. Correct COGS categorization is critical for accurate margins.

Operating expenses (OpEx) are the indirect costs of running a business: rent, utilities, salaries for non-production staff, marketing, software subscriptions, etc. Subtracting them from gross profit gives your operating profit (EBIT). Enter them in the optional Operating Expenses field to see your net profit and net margin.

This feature answers: 'What must my selling price be to hit a specific gross margin?' The formula is: Required Revenue = COGS ÷ (1 − Target Margin %). For example, if COGS is $60 and you want a 40% margin, you need $60 ÷ (1 − 0.40) = $100 revenue. This is useful for pricing new products or adjusting prices to meet profitability goals.

Yes. For service businesses, enter your revenue per project or period, and use COGS for direct labor and materials (e.g., contractor hours, supplies). Operating expenses can capture overhead like office rent and admin costs. The margin and markup calculations apply identically to both product and service businesses.

This is mathematically expected when a product is profitable. Margin is always lower than markup for the same product because they divide by different bases: margin divides by the larger number (revenue), while markup divides by the smaller number (cost). For a $60 cost and $100 sale: Margin = 40/100 = 40%, Markup = 40/60 = 66.7%.

The calculator computes pre-tax margins. To include income tax in your net margin, add estimated tax to the Operating Expenses field, or simply note that the displayed net margin is before taxes. True net profit after tax requires knowing your effective tax rate, which varies by jurisdiction and business structure.

COGS ratio (also called cost ratio) is the percentage of revenue consumed by direct costs: COGS ÷ Revenue × 100. It is the complement of gross margin — if gross margin is 40%, COGS ratio is 60%. Tracking it over time helps identify cost creep in production. A rising COGS ratio signals that costs are growing faster than revenue, which erodes margins.