Teams & projects
Profit margin calculator
Enter the revenue from a sale and its cost to get the gross profit, the gross margin percentage, and the markup the same profit represents.
Use revenue and cost for the same period or the same sale, before overheads, to get the gross figure.
How gross margin is calculated
Gross profit is simply revenue minus the cost of the goods sold: on $100 of revenue with $60 of cost, the profit is $40. The gross margin expresses that profit as a share of revenue: 40 ÷ 100 = 40%. In words, the business keeps 40 cents of gross profit from every dollar it takes in, before paying overheads such as rent, salaries and marketing.
The same $40 profit can also be stated as a markup, which is profit over cost rather than over revenue: 40 ÷ 60 = 66.7%. Margin and markup are two views of one profit, and margin is always the smaller of the two because revenue is larger than cost. The cost ratio is the rest of the revenue, 60% here, so margin and cost ratio always add up to 100%.
| Cost | Profit | Margin |
|---|---|---|
| $80 | $20 | 20% |
| $60 | $40 | 40% |
| $40 | $60 | 60% |
| $20 | $80 | 80% |
Reading the margin
Gross margin varies enormously by industry, so compare yours against similar businesses rather than a single benchmark. Grocery retail runs on single-digit margins and makes money on volume; software can exceed 80% because each extra copy costs almost nothing to produce. A rising gross margin over time usually means better purchasing, pricing or product mix, while a falling one is an early warning worth investigating before it reaches the bottom line.
This is a gross margin: it counts only the direct cost of the goods, not overheads, so it is always higher than the net margin that remains after every expense. Keep revenue and cost on the same basis, both excluding sales tax, so the percentage is not distorted. If cost ever exceeds revenue the margin turns negative, a loss, which the calculator flags rather than hiding behind a minus sign.
Frequently asked questions
Is margin the same as markup?
No. Margin is profit as a percentage of revenue; markup is the same profit as a percentage of cost. A 40% margin equals a 66.7% markup, so always be clear which one a price is quoted in.
What is the difference between gross and net margin?
Gross margin subtracts only the direct cost of goods. Net margin also subtracts overheads, salaries, interest and tax, so it is lower and reflects what the business actually keeps.
What is a good profit margin?
It depends on the industry. Supermarkets survive on a few percent while software can exceed 80%. Compare against similar businesses and watch the trend in your own margin over time.