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Profit Margin Calculator

Turn revenue and cost into the two numbers that matter: gross profit and profit margin percentage.

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Everything it cost to make those sales: products, materials or direct costs.
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How is this calculated?

Margin shows profit as a share of revenue, which makes it easy to compare across products and periods of different sizes.

Gross Profit = Revenue - Cost
Profit Margin = Gross Profit / Revenue x 100

Worked Example

Revenue: $1,000. Cost: $600.

Gross profit = $1,000 - $600 = $400. Profit margin = $400 / $1,000 x 100 = 40.0%.

In plain English: for every $100 in sales, approximately $40 remains as gross profit.

How to Calculate Profit Margin

Take your revenue for a period or a product, subtract the direct costs of making those sales, and you have gross profit. Divide gross profit by revenue and multiply by 100 to get the margin percentage.

Be consistent about which costs you include. Gross margin normally covers the direct cost of what you sold: products, materials and direct labour. Rent, software and other overheads belong to net margin calculations. Mixing the two makes comparisons meaningless, so pick one definition and stick with it.

Why Profit Margin Matters

Margin is the buffer that pays for everything else: overheads, taxes, slow months and growth. Two businesses with the same revenue can be in completely different health if one keeps 40 cents of every dollar and the other keeps 8 cents. Margin also makes products comparable: a $200 item at a 15 percent margin earns less per sale than a $60 item at a 60 percent margin.

Margin connects directly to markup. They describe the same profit two different ways, and confusing them is a classic pricing error explained in our markup vs margin guide.

How to Improve Your Numbers

Margin improves from either side: raise prices where the value supports it, or reduce the direct cost per sale. Supplier negotiation, cheaper shipping, fewer discounts and less waste all lift margin without selling a single extra unit. Review margin per product, not just overall, because a few weak products can quietly drag down a healthy catalogue.

Frequently Asked Questions

What is the difference between gross margin and net margin?

Gross margin subtracts only the direct costs of what you sold. Net margin subtracts everything, including rent, software, advertising and taxes. Gross margin is the right tool for judging products; net margin judges the whole business.

Can profit margin be over 100 percent?

No. Margin is profit divided by revenue, and profit cannot exceed revenue unless costs are negative. If you see a number over 100 percent, you are probably looking at markup instead.

What is a good profit margin?

It varies a lot by industry. Grocery and high-volume retail run on thin margins, while services and digital products often run much higher. Many small sellers aim for gross margins in the 30 to 50 percent range on products, but the right target is the one that covers your overheads with room to grow.

Why did my margin fall even though sales rose?

Usually because costs rose with sales: discounting, higher ad costs, more returns or a shift toward lower-margin products. Check margin per product to find the cause.

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