Analyze your unit economics by distinguishing Gross vs Net Margin. Essential for pricing strategy.

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Profit Margin Calculator

How it Works

The calculation involves isolating costs from revenue. Gross Profit Margin = ((Revenue - COGS) / Revenue) * 100. For example, if you sell a product for $100 and it costs $60 to make, your gross profit is $40, and your margin is 40%. Net Profit Margin follows a similar logic but subtracts all expenses (OpEx, Tax, Interest) from Revenue before dividing by Revenue.

What is Profit Margin Calculator?

Profit margin is the definitive metric of a company's profitability and efficiency. Unlike simple profit (a dollar amount), margin is a percentage that reveals how many cents of every dollar of revenue are actually kept as earnings. Gross Margin focuses on direct production costs (COGS), providing insight into manufacturing efficiency, while Net Margin accounts for all operating expenses, taxes, and interest, reflecting the overall health of the business.

Step-by-Step Guide

  1. Identify Revenue: Total income from sales before any deductions.
  2. Isolate COGS: Direct costs attributable to the production of the goods sold (materials, direct labor).
  3. Calculate Profit: Subtract Cost from Revenue.
  4. Derive Margin: Divide Profit by Revenue and multiply by 100 to get the percentage.

Example

Input: $100 Revenue, $60 COGS

Result: 40% Gross Margin

FAQ

What is the difference between Margin and Markup?

Margin is profit as a percentage of the *sales price*. Markup is profit as a percentage of the *cost*. A 50% markup results in a 33.3% profit margin.

What is a healthy profit margin?

It varies by industry. Retail typically targets 20-50% gross margin, while SaaS (Software as a Service) often aims for 70-80% gross margin due to low variable costs.

Why is my Net Margin lower than Gross?

Net margin includes operating expenses (rent, salaries, marketing), taxes, and interest, which are not included in Gross Margin.

How can I improve my margin?

You can raise prices (if the market allows), reduce COGS by negotiating with suppliers, or improve operational efficiency to lower waste.

Can margin be negative?

Yes. If costs exceed revenue, the margin is negative, indicating a loss on every unit sold. This is sometimes acceptable for short-term growth strategies.

Conclusion

Margin is the truest measure of efficiency. High revenue with low margin is a vulnerability, as a slight increase in costs can turn the business unprofitable. Healthy businesses prioritize sustainable margins over vanity revenue metrics, allowing for reinvestment and error buffering.

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References & Standards

This calculator uses formulas and data standards from Standard References to ensure accuracy.

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