Profit Margin Calculator
Calculation Summary
Gross Profit:
$0.00
Gross Margin:
0.00%
Net Profit:
$0.00
Net Profit Margin:
0.00%
Markup:
0.00%
Understanding Profit Margin Calculations
Profit margin is a key financial metric used to assess the health and efficiency of a business. It measures how much out of every dollar of sales a company actually keeps in its earnings. Whether you are a small business owner, an e-commerce seller, or a financial analyst, knowing your margins is vital for setting prices and managing costs.
Key Profitability Formulas
To use this calculator effectively, it helps to understand the underlying math:
- Gross Profit: Revenue – Cost of Goods Sold (COGS).
- Gross Margin: (Gross Profit / Revenue) × 100. This shows the efficiency of production.
- Net Profit: Gross Profit – Operating Expenses (including taxes and interest).
- Net Margin: (Net Profit / Revenue) × 100. This shows the final bottom-line profitability.
- Markup: (Gross Profit / COGS) × 100. This is the percentage added to the cost to reach the selling price.
Real-World Example
Imagine you sell a custom-built desk for $1,000 (Revenue). The wood, hardware, and labor cost you $600 (COGS). You also pay $150 for workshop rent and marketing for that sale (Operating Expenses).
- Gross Profit: $1,000 – $600 = $400
- Gross Margin: ($400 / $1,000) = 40%
- Net Profit: $400 – $150 = $250
- Net Margin: ($250 / $1,000) = 25%
- Markup: ($400 / $600) = 66.67%
Frequently Asked Questions
What is a good profit margin?
A "good" margin varies wildly by industry. For instance, software companies often see gross margins over 80%, while grocery stores might operate on net margins as thin as 1% to 2%.
What is the difference between Margin and Markup?
Margin is based on the selling price, while Markup is based on the cost price. If you buy for $70 and sell for $100, your margin is 30%, but your markup is 42.8%.