Profit margin calculator
Enter your revenue and costs to see gross margin, net margin and markup. Margin and markup are the two figures people mix up most often, and mixing them up is one of the most common ways businesses underprice what they sell.
Uses a standard published formula, explained below. Everything is calculated in your browser, and nothing you enter is sent to a server. This is 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
Confusing these two is one of the costliest mistakes in small business pricing, so the calculator shows them side by side.
Margin is profit as a percentage of the selling price. Markup is profit as a percentage of the cost. If you buy something for 60 and sell it for 100, your margin is 40% but your markup is 67%. It is the same sale described in two different ways.
The problem starts when someone wants a 40% margin but adds 40% to their cost instead. A cost of 60 plus 40% gives a price of 84, not 100. Their real margin is then about 29%, while they believe it is 40%. Repeated across every product, that gap can decide whether a business survives.
To convert markup into margin, use margin = markup ÷ (1 + markup). A 50% markup is a 33% margin, and a 100% markup is a 50% margin.
Gross margin and net margin
Gross margin only subtracts the direct cost of what you sold, such as materials, manufacturing or the wholesale price. It tells you whether the product itself makes money, which is a question about pricing and sourcing.
Net margin also subtracts all your other costs, such as rent, salaries, software, marketing and administration. It tells you whether the business as a whole makes money, which is a separate question.
A company can have excellent gross margins and still make a loss, which is normal for a young business spending heavily to win customers. The opposite, thin gross margins with a healthy net margin, is rare and usually means very low overheads.
What is a healthy profit margin?
It depends almost entirely on the industry, so comparing margins across different industries tells you very little.
Grocery stores usually have gross margins in the low twenties and net margins of only 1% to 3%, and they make their money on volume. Restaurants often have gross margins of 60% to 70% on food, but net margins in single digits once rent and wages are paid. Software companies often have gross margins above 80%, because selling one more copy costs almost nothing, while their net margins vary widely depending on how much they spend on growth. Professional services sit somewhere in between, with staff as their main cost.
The most useful comparison is with your own past results and with your direct competitors, not with a general benchmark.
How to improve your margin
There are only two levers: raise your prices or cut your costs. Raising prices is often the more powerful of the two, and also the one people are most nervous about.
Take the example above, with a cost of 60 and a price of 100. If you raise the price by 5% and sell the same quantity, your profit on each sale rises from 40 to 45, an increase of 12.5%, with no extra work. Even if you lose a few customers, the numbers often still favor the increase, because the customers most likely to leave over price are often the least profitable ones.
Cutting costs is safer, but there is a limit. You can only reduce what you pay for materials and suppliers so far before quality suffers, and quality problems usually end up costing more than they saved.
Frequently asked questions
What is a good profit margin?
It depends on the industry. Grocery stores often have net margins of 1% to 3%, while software companies can exceed 20%. Compare your margin with your own past results and your direct competitors instead of a general figure.
What is the difference between gross margin and net margin?
Gross margin only subtracts the direct cost of the goods you sold, so it shows whether your products are priced well. Net margin subtracts all your operating costs as well, so it shows whether the business is profitable.
What is the difference between margin and markup?
Margin is profit as a share of the selling price, while markup is profit as a share of the cost. A 50% markup is only a 33% margin, and confusing the two is a common cause of underpricing.
How do I convert markup to margin?
Divide the markup by one plus the markup, using decimals. A 67% markup is 0.67, so the margin is 0.67 ÷ 1.67, which is 40%.
How can I improve my profit margin?
Raise your prices or reduce your costs. Price rises usually have more effect, because the extra money goes almost entirely to profit, while cost cuts are limited by the need to keep quality up.
Should my own salary count as an operating expense?
Yes, if you pay yourself from the business. Otherwise your net margin will make the business look more profitable than it really is, because your time is a real cost.