Profit Margin Calculator
Profit margin is a key indicator of your business's financial health. It shows what percentage of revenue you keep as profit. Use this calculator to find both your gross and net profit margins.
Profitability Ratios
How It's Calculated
This calculator determines both Gross Profit Margin and Net Profit Margin, which are two of the most important financial indicators of a business’s profitability.
Here’s the step-by-step process:
Gross Profit = Revenue - COGS
Gross Profit Margin = (Gross Profit / Revenue) × 100
Net Profit = Gross Profit - Operating Expenses
Net Profit Margin = (Net Profit / Revenue) × 100
- Gross Profit Margin shows how efficiently a company produces and sells goods by comparing revenue to the direct costs of production (Cost of Goods Sold). - Net Profit Margin goes a step further by accounting for all operating expenses, taxes, and interest, giving a more complete picture of overall profitability.
A higher margin means the business is keeping more of its revenue as profit, while a lower margin may suggest higher costs, lower efficiency, or pricing challenges.
Frequently Asked Questions
What is a good profit margin?
Profit margins vary by industry. For example, grocery stores often have very thin margins (1–3%), while software companies can have margins above 20–30%. As a general rule, the higher the margin compared to industry peers, the healthier the business is.
What’s the difference between gross and net profit margin?
Gross profit margin only considers revenue minus direct production costs (COGS), while net profit margin includes all operating expenses, taxes, and interest. Net profit margin is always lower but gives a clearer view of overall profitability.
Why do margins matter?
Margins are critical for understanding efficiency, pricing strategy, and long-term sustainability. Investors, lenders, and stakeholders often look at margins to assess whether a business is financially strong and competitive in its market.
Can profit margins be negative?
Yes. If expenses exceed revenue, both gross or net margins can be negative, indicating losses. A negative margin usually signals pricing issues, high costs, or weak demand.