Profit Margin Calculator
Calculate gross margin, operating margin, and net profit margin for any business or product.
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How to Calculate Profit Margin
Profit margin is the percentage of revenue that remains as profit after deducting costs. There are three levels:
- Gross margin = (Revenue − COGS) ÷ Revenue × 100. Shows how efficiently you produce/source goods.
- Operating margin = (Gross Profit − OpEx) ÷ Revenue × 100. Shows profitability after running the business.
- Net margin = Net Profit ÷ Revenue × 100. The bottom line after everything including taxes.
What Is a Good Profit Margin?
Benchmarks vary by industry. Software businesses often achieve net margins of 20–40%. Retail and ecommerce typically see 2–10% net margin. Service businesses range from 10–30%. As a general guide: gross margin above 40% is strong for product businesses; net margin above 10% is healthy across most industries.
If you sell on Amazon or Shopify, your platform fees significantly compress margins — use the Amazon FBA Margin Calculator or Shopify Margin Calculator for platform-specific calculations.
Margin vs. Markup: What's the Difference?
Margin is profit expressed as a percentage of selling price. Markup is profit expressed as a percentage of cost. A product costing $60 sold for $100 has a 40% margin but a 67% markup. They measure the same profit from different reference points. Use the Markup Calculator to convert between the two instantly.
Frequently Asked Questions
What is the difference between gross margin and net margin?
Gross margin only subtracts the direct cost of producing or buying the goods sold (COGS). Net margin subtracts every cost — COGS, operating expenses like rent and salaries, interest, and taxes. Gross margin tells you production efficiency; net margin tells you overall business profitability.
How do I improve my profit margin?
You can improve margin by: (1) raising prices if your market allows, (2) reducing COGS through better supplier negotiations or economies of scale, (3) cutting operating expenses that don't contribute to revenue, or (4) focusing on higher-margin products or customer segments. Most improvements come from a combination of these.
What is EBITDA and how does it relate to operating margin?
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a close cousin of operating profit. Operating margin uses EBIT (which includes depreciation/amortization). EBITDA adds those non-cash charges back, making it a better measure of operating cash generation. EBITDA margin is commonly used in business valuation — see our Business Valuation Calculator.
Should I use revenue or gross profit as my base for margin targets?
Set targets at each level. Gross margin targets should be based on your industry and how you source goods. Operating margin targets should account for your business model's overhead structure. Net margin is your ultimate profitability benchmark. Track all three — a business with high gross margin but high overhead can still have poor net margins.
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