Calculate your business's profit margin to understand profitability.
Enter values above
Understanding and Calculating Profit Margin
Profit margin is a critical financial metric that measures a company's profitability. It represents how much profit is generated as a percentage of revenue. A higher profit margin generally indicates greater efficiency and better financial health. There are several types of profit margins, but the most common ones are Gross Profit Margin, Operating Profit Margin, and Net Profit Margin. This calculator focuses on the Net Profit Margin, which is the ultimate measure of a company's profitability after all expenses have been accounted for.
The Formula
The formula for Net Profit Margin is:
Net Profit Margin (%) = (Total Revenue - Total Expenses) / Total Revenue * 100
Where:
Total Revenue: The total income generated from sales of goods or services.
Total Expenses: This includes the Cost of Goods Sold (COGS) and all Operating Expenses (like rent, salaries, marketing, utilities, interest, taxes, etc.). For simplicity in this calculator, we sum COGS and Operating Expenses provided.
How to Use This Calculator
Total Revenue: Enter the total amount of money your business has earned from its sales over a specific period.
Cost of Goods Sold (COGS): Enter the direct costs attributable to the production or purchase of the goods sold by your company.
Operating Expenses: Enter all other costs incurred in running your business that are not directly tied to production, such as rent, salaries, marketing, administrative costs, etc.
Click the "Calculate Profit Margin" button.
The result will show your Net Profit Margin as a percentage, indicating how much profit you make for every dollar of revenue.
Why is Profit Margin Important?
Profitability Assessment: It directly shows how profitable your business is.
Benchmarking: Allows you to compare your performance against industry averages or competitors.
Pricing Strategy: Helps in evaluating and adjusting pricing for products or services.
Efficiency Measurement: A declining profit margin might signal issues with cost control or pricing power.
Investment Decisions: Investors use profit margins to gauge a company's financial health and potential returns.
This means the business generates $0.30 in profit for every dollar of revenue.
function calculateProfitMargin() {
var revenueInput = document.getElementById("revenue");
var cogsInput = document.getElementById("costOfGoodsSold");
var expensesInput = document.getElementById("operatingExpenses");
var resultDiv = document.getElementById("result");
var revenue = parseFloat(revenueInput.value);
var cogs = parseFloat(cogsInput.value);
var expenses = parseFloat(expensesInput.value);
if (isNaN(revenue) || isNaN(cogs) || isNaN(expenses)) {
resultDiv.textContent = "Please enter valid numbers.";
resultDiv.style.backgroundColor = "#dc3545"; // Red for error
return;
}
if (revenue <= 0) {
resultDiv.textContent = "Revenue must be greater than zero.";
resultDiv.style.backgroundColor = "#dc3545"; // Red for error
return;
}
if (cogs < 0 || expenses < 0) {
resultDiv.textContent = "Costs cannot be negative.";
resultDiv.style.backgroundColor = "#dc3545"; // Red for error
return;
}
var totalExpenses = cogs + expenses;
var profit = revenue – totalExpenses;
var profitMargin = (profit / revenue) * 100;
// Format to two decimal places
var formattedProfitMargin = profitMargin.toFixed(2);
resultDiv.textContent = "Net Profit Margin: " + formattedProfitMargin + "%";
resultDiv.style.backgroundColor = "var(–success-green)"; // Green for success
}