Profit margin calculator
Gross margin, net margin and markup from your revenue and cost figures. Markup and margin are the pair most often confused, and confusing them is how businesses underprice themselves.
Built and checked by Mubashir, who works in accounting and finance. Formula and sources shown below. Not financial advice.
Revenue and costs
Gross profit margin
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Gross profit
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Net profit
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Net margin
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Markup on cost
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Show the working
—Margin and markup are not the same thing
This is the most expensive confusion in small business pricing, and the calculator shows both figures side by side so the gap is visible.
Margin is profit as a share of the selling price. Markup is profit as a share of the cost. Buy for 60 and sell for 100, and you have a 40% margin but a 67% markup. Same transaction, two very different numbers.
The damage happens when someone wants a 40% margin, applies a 40% markup to their cost, and sells for 84 instead of 100. They have taken a 28% margin while believing they took 40. Repeated across a catalogue, that is the difference between a viable business and one that quietly bleeds.
To convert: margin = markup ÷ (1 + markup). A 50% markup is a 33% margin. A 100% markup is a 50% margin.
Gross against net
Gross margin subtracts only the direct cost of what you sold — materials, manufacturing, the wholesale price. It tells you whether the product itself makes money, which is a question about pricing and sourcing.
Net margin subtracts everything else too: rent, salaries, software, marketing, administration. It tells you whether the business makes money, which is a different question with different answers.
A company can have excellent gross margins and lose money, which is the normal condition of a growing business spending heavily on acquisition. The reverse — thin gross margins and healthy net — is rare and usually means very low overheads.
What counts as healthy
Almost entirely determined by industry, so cross-sector comparison is close to meaningless.
Grocery retail runs on gross margins in the low twenties and net margins of one to three percent, surviving on volume and inventory turnover. Restaurants typically see gross margins around 60 to 70% on food but net margins in the single digits once rent and labour are paid. Software often posts gross margins above 80%, because copying a product costs almost nothing, while net margins vary wildly with how much is being spent on growth. Professional services sit in between, with the main cost being people.
The useful comparison is against your own past figures and against direct competitors, not against a general benchmark.
Improving a margin
Only two levers exist: raise price or cut cost. Price is usually the more powerful and the more feared.
Consider a business with a 40% gross margin. A 5% price increase, if volume holds, adds five points of margin — more than a 10% reduction in cost of goods would achieve. Even with some customer loss the maths often favours the increase, because the customers most likely to leave over price are frequently the least profitable to serve.
Cutting cost is safer but bounded. You can only reduce input prices so far before quality suffers, and quality problems eventually cost more than they saved.
Frequently asked questions
What is a good profit margin?
It depends entirely on the industry. Grocery retail operates on net margins of one to three percent while software can exceed twenty. Compare against your own history and direct competitors rather than a general benchmark.
What is the difference between gross and net margin?
Gross margin subtracts only the direct cost of goods sold and tells you whether the product is priced well. Net margin subtracts all operating expenses too and tells you whether the business is profitable.
What is the difference between margin and markup?
Margin is profit as a share of the selling price; markup is profit as a share of the cost. A 50% markup is only a 33% margin. Mixing them up is a common cause of underpricing.
How do I convert markup to margin?
Divide the markup by one plus the markup. A 67% markup expressed as a decimal is 0.67, so the margin is 0.67 divided by 1.67, which is 40%.
How can I improve my profit margin?
Raise prices or reduce costs. Price increases usually have more leverage, since a small percentage added to price flows almost entirely to profit, while cost reductions are bounded by quality.
Should operating expenses include my own salary?
If you take a salary from the business, yes — otherwise net margin overstates profitability. Owner compensation is a real cost even when it is paid to you.