Profit Margin Calculator
Enter your revenue and costs to instantly calculate your profit margins and markups.
Gross Profit:
$0.00
Gross Profit Margin:
0.00%
Markup:
0.00%
How to Calculate Profit Margin
Understanding your profit margin is critical for the sustainability of any business. It reveals how much of every dollar of sales actually ends up as profit after expenses are paid. A higher margin indicates a more efficient and profitable operation.
The Formula:
Profit Margin = ((Revenue – Cost) / Revenue) x 100
Profit Margin = ((Revenue – Cost) / Revenue) x 100
Step-by-Step Calculation Guide
To find your profit margin manually, follow these three steps:
- Find Gross Profit: Subtract the Cost of Goods Sold (COGS) from your total Revenue. (e.g., $100 – $70 = $30).
- Divide by Revenue: Take that Gross Profit and divide it by the original Revenue amount. (e.g., $30 / $100 = 0.3).
- Convert to Percentage: Multiply by 100 to get your percentage margin. (e.g., 0.3 x 100 = 30%).
Margin vs. Markup: What's the Difference?
While often used interchangeably, margin and markup are calculated differently and represent different perspectives:
- Profit Margin: Relates profit to the selling price. It answers: "How much of my sales price is profit?"
- Markup: Relates profit to the unit cost. It answers: "How much over the cost price am I charging?"
Real-World Example
Imagine you sell a handcrafted table for $500. The materials and labor (COGS) to make that table cost you $350.
- Gross Profit: $500 – $350 = $150
- Profit Margin: ($150 / $500) = 0.30 or 30%
- Markup: ($150 / $350) = 0.428 or 42.8%
In this scenario, for every dollar the customer spends, you keep 30 cents as profit.