Profit Margin Calculator
Calculate your gross profit, profit margin, and markup percentage from revenue and cost.
What is Profit Margin?
Profit margin is a financial metric that measures how much of every dollar of revenue a business keeps as profit. It is expressed as a percentage and is one of the most important indicators of a company’s profitability and financial health. A higher margin means the business retains more money from each sale after covering its costs.
Understanding your profit margin helps you price products correctly, control costs, compare performance against competitors, and make better strategic decisions for growth.
How to Use the Profit Margin Calculator
Using the calculator takes just two numbers:
- Enter your revenue (the total money brought in from sales).
- Enter your cost of goods sold (the direct cost of producing or buying what you sell).
Press Calculate Margin and you will instantly see your gross profit, profit margin percentage, and markup percentage.
The Profit Margin Formula
The gross profit margin formula is:
Profit Margin = ((Revenue − Cost) ÷ Revenue) × 100
The related markup formula is:
Markup = ((Revenue − Cost) ÷ Cost) × 100
The difference matters: margin measures profit as a percentage of revenue, while markup measures profit as a percentage of cost.
Example Calculation
A small business sells a product for $1,000 and the cost of goods sold is $650.
| Item | Value |
|---|---|
| Revenue | $1,000 |
| Cost of Goods Sold | $650 |
| Gross Profit = 1,000 − 650 | $350 |
| Profit Margin = (350 ÷ 1,000) × 100 | 35% |
| Markup = (350 ÷ 650) × 100 | 53.85% |
For every $1,000 in sales, the business keeps $350 as gross profit.
Why Profit Margin Matters
Profit margin reveals how efficiently a business converts sales into profit. It is a key figure for investors, lenders, and owners because it shows whether a business is genuinely profitable after direct costs. Tracking margins over time also helps you spot rising costs, pricing problems, or improving operational efficiency early.
How the Calculator Works
The calculator subtracts the cost from the revenue to find gross profit, then divides that profit by revenue (for margin) or by cost (for markup) and multiplies by 100 to express the result as a percentage. All figures are shown in two decimal places for clarity.
Margin vs Markup: A Common Confusion
Many business owners mix up margin and markup. A 40% markup does not equal a 40% margin. Because markup is based on cost and margin is based on revenue, they are different numbers even for the same sale. This calculator shows both so you can use the right figure for pricing decisions, negotiations, and financial reporting.
Frequently Asked Questions
What is a good profit margin?
It varies by industry. Service businesses often have higher margins than retailers. A net profit margin of 10% to 20% is generally considered healthy, but compare yourself to peers in your own sector.
What is the difference between gross and net profit margin?
Gross profit margin only accounts for direct costs of goods sold, while net profit margin subtracts all expenses including operating costs, taxes, and interest.
Can profit margin be negative?
Yes. If your costs exceed your revenue, your profit is negative and the margin will show as a negative percentage, indicating a loss.
Should I use margin or markup for pricing?
Both are useful. Use margin to understand how much you keep from sales, and markup to set prices from your costs. Knowing the difference prevents costly pricing errors.
Start Calculating Now
Enter your revenue and costs in the Profit Margin Calculator above to see your gross profit, margin, and markup instantly. It is the fastest way to understand the real profitability of your products or services.