Profit Margin Calculator
First published:
This free profit margin calculator will be your best friend if you want to find out how much of every dollar of revenue actually becomes profit. Enter your cost and revenue or any two known values and gross margin, net profit, and profit percentage are computed instantly.
TL;DR: This page discusses profit margin calculation, gross margin formula, net profit margin, and the difference between margin and markup.
How to calculate profit margin
In general, your profit margin determines how financially healthy your business is. A low margin means you are operating on thin ice; any unexpected cost increase or revenue dip can push you into loss. A strong margin means you have breathing room for bad months, investment, and growth. Here is how to calculate it step by step:
- Find your COGS (cost of goods sold), for example,
$30. - Find your revenue, i.e. the price you sell for, for example,
$50. - Calculate gross profit by subtracting cost from revenue:
$50 − $30 = $20. - Divide gross profit by revenue:
$20 ÷ $50 = 0.40. - Express as a percentage:
0.40 × 100 = 40%. - That is your gross profit margin, or simply use our profit margin calculator above.
As you can see, margin is a straightforward percentage calculation. The critical distinction, as opposed to markup, is that margin is based on revenue, not on cost of goods sold.
Gross margin formula
The gross profit margin formula expressed mathematically is:
Go ahead and enter different values into the profit margin calculator above. Any two fields will compute the remaining values automatically, whether you know cost and revenue, revenue and margin, or cost and desired margin.
A note on terminology
The terms margin, profit margin, gross margin, and gross profit margin are used interchangeably across industries, and the differences rarely matter for day-to-day pricing decisions. In this calculator, we treat them as equivalent unless stated otherwise.
Where it does matter is the distinction between gross and net profit margin:
| Gross Profit Margin | Net Profit Margin | |
|---|---|---|
| What it subtracts | Cost of goods sold (COGS) only | All expenses: COGS, rent, wages, taxes, interest |
| What it measures | Production or sourcing efficiency | Overall business profitability |
| Formula | (Revenue − COGS) ÷ Revenue × 100 | Net Profit ÷ Revenue × 100 |
| Who uses it | Pricing, product teams, buyers | Investors, accountants, executives |
| Example ($50 revenue, $30 COGS, $10 overheads) | ($50 − $30) ÷ $50 × 100 = 40% | ($50 − $40) ÷ $50 × 100 = 20% |
Investors almost always assess net profit margin, since gross margin can look healthy even when a business is unprofitable at the operating level. For pricing decisions, gross margin is the more actionable figure.
Profit margin vs. markup
The difference between profit margin and markup is small but consequential. Margin is the ratio of profit to revenue (selling price). Markup is the ratio of profit to cost. Because revenue is always larger than cost, margin will always be a lower percentage than markup for the same transaction, and confusing the two leads to systematic underpricing.
| Markup % | Equivalent Margin % | Example: $100 cost | Selling price |
|---|---|---|---|
| 20% | 16.67% | $100.00 | $120.00 |
| 25% | 20.00% | $100.00 | $125.00 |
| 33% | 24.81% | $100.00 | $133.00 |
| 50% | 33.33% | $100.00 | $150.00 |
| 75% | 42.86% | $100.00 | $175.00 |
| 100% | 50.00% | $100.00 | $200.00 |
| 150% | 60.00% | $100.00 | $250.00 |
| 200% | 66.67% | $100.00 | $300.00 |
It is interesting to observe that in practice, more people search for profit margin calculator than for markup calculator, yet markup is arguably the more intuitive concept when setting prices. For a full breakdown, see our guide: Margin vs. Markup: What's the Difference?
What is a good profit margin?
There is no universal answer; the right profit margin depends on your industry, business model, and growth stage. What counts as healthy in one sector would signal crisis in another. Here are representative benchmarks:
| Industry | Typical gross margin | Typical net margin |
|---|---|---|
| Grocery retail | 20–30% | 1–3% |
| Restaurants | 60–70% | 3–9% |
| Clothing & apparel | 40–60% | 5–10% |
| Consumer electronics | 20–35% | 2–6% |
| Software / SaaS | 70–90% | 15–30% |
| Professional services | 30–60% | 10–20% |
| Construction | 15–25% | 2–6% |
| Healthcare | 40–60% | 5–15% |
As a general starting point: a net profit margin below 5% is considered thin and leaves little room for error. Around 10% is solid for most industries. Above 20% is strong, and indicates either a pricing advantage, a cost advantage, or both. For new businesses, margins are typically lower in the early years as fixed costs are spread across smaller revenue, which is normal and expected.
One important principle: never have a negative gross profit margin. If your revenue does not cover the direct cost of your product or service, no amount of volume will fix the problem; you are losing money on every transaction and scaling will only accelerate the loss.
How to calculate specific profit margins
A common question is how to work backwards from a target margin to a selling price. The method is the same for any margin target:
The pattern: subtract your target margin (as a decimal) from 1, then divide your cost by the result. The profit margin calculator above handles this automatically; just enter your cost and target margin.
How to calculate profit margin in Excel
While our profit margin calculator is the fastest option, it is useful to know how to replicate the calculation in a spreadsheet:
- Enter your cost of goods sold in cell
A1. - Enter your revenue in cell
B1. - In
C1, calculate gross profit:=B1-A1. Label it "Gross Profit". - In
D1, calculate margin:=(C1/B1)*100. Label it "Margin %". - Right-click
D1, select Format Cells, choose Percentage, and set your preferred decimal places.
This formula updates automatically whenever cost or revenue changes, which is useful for running scenarios across a product range or comparing multiple SKUs.
Frequently Asked Questions
What is profit margin?
Profit margin is the percentage of revenue that remains as profit after subtracting costs. It tells you how efficiently a business converts revenue into profit. A 40% profit margin means that for every $1 of revenue, $0.40 is profit and $0.60 covers costs.
What is the profit margin formula?
The gross profit margin formula is: Profit Margin = (Revenue − Cost) ÷ Revenue × 100. For net profit margin, replace cost with all expenses including overheads, taxes, and interest: Net Margin = Net Profit ÷ Revenue × 100.
What is the difference between gross and net profit margin?
Gross profit margin only subtracts the direct cost of goods sold (COGS) from revenue. Net profit margin subtracts all expenses: COGS, operating costs, rent, wages, taxes, and interest. Gross margin tells you how efficiently you produce or source your product; net margin tells you how much actually ends up in your pocket.
What is a good profit margin?
There is no single answer; it depends entirely on your industry. As a general benchmark: a net profit margin below 5% is considered thin, 10% is healthy, and 20%+ is strong. Grocery retail operates on margins below 5%, while software companies can exceed 20–30%. Always compare your margin against your specific industry average, not a universal standard.
How do I calculate a 20% profit margin?
To find the selling price that delivers a 20% profit margin: (1) convert 20% to a decimal (0.20), (2) subtract from 1, giving 0.80, (3) divide your cost by 0.80. Example: a product that costs $50 must sell for $50 ÷ 0.80 = $62.50 to achieve a 20% margin.
How do I calculate a 30% profit margin?
Divide your cost price by 0.70 (which is 1 minus 0.30). Example: a $40 cost item must sell for $40 ÷ 0.70 = $57.14 to achieve a 30% profit margin.
How do I calculate a 10% profit margin?
Divide your cost price by 0.90. Example: a $100 cost item must sell for $100 ÷ 0.90 = $111.11 to deliver a 10% profit margin.
What is the difference between profit margin and markup?
Profit margin is profit expressed as a percentage of revenue (selling price). Markup is profit expressed as a percentage of cost. Because revenue is always larger than cost, margin is always a lower number than markup for the same transaction. A 50% markup equals a 33.3% profit margin; they are never the same figure.
Are margin and profit the same thing?
No. Profit is an absolute dollar amount, specifically the money left after subtracting costs from revenue. Margin is a relative percentage, i.e. profit expressed as a share of revenue. Profit tells you the size of your gain; margin tells you the efficiency of that gain relative to your revenue.
How do I calculate profit margin in Excel?
Enter your cost in cell A1 and revenue in cell B1. In C1, calculate profit with =B1-A1. In D1, calculate margin with =(C1/B1)*100 and format as a percentage. Label your columns clearly and the spreadsheet will update automatically whenever you change cost or revenue.
Can profit margin be too high?
In theory, yes. Extremely high margins in competitive markets can signal underinvestment in growth, R&D, or customer experience, which can attract new competitors. In practice, most businesses benefit from reinvesting excess margin back into the business rather than maximising short-term profit at the expense of long-term market position.
Related Calculators & Guides
Most people who use this profit margin calculator also find these tools useful for pricing, purchasing, and financial planning.
Cite as: "Profit Margin Calculator" at https://markupcalculation.com/profit-margin-calculator - Last reviewed: June 2026.