Profit Margin Calculator

Revenue (Total Sales)

Cost of Goods Sold (COGS)

Operating Expenses

40.0%

Gross Margin

15.0%

Net Margin

$40,000

Gross Profit

$15,000

Net Profit

66.7%

Markup

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How to Use This Profit Margin Calculator

Enter your Revenue — your total sales for the period (month, quarter, or year).
Enter your COGS — the direct cost of producing what you sold (materials, direct labor, manufacturing, or the wholesale cost of goods).
Enter your Operating Expenses — everything else it takes to run the business: rent, salaries, marketing, software, insurance.
Read your results — gross margin, net margin, gross profit, net profit, and markup update instantly.

What Is Profit Margin?

Profit margin is the percentage of your revenue that you actually keep as profit after costs. It is one of the most important numbers in any business, because it tells you how efficiently you turn sales into money in the bank. A business can have high revenue and still lose money if its margins are too thin.

There are two margins every small business owner should know. Gross margin measures profitability after the direct cost of your product or service (COGS) — it shows whether your core offering is priced and produced profitably. Net profit margin measures what is left after all expenses, including operating costs, and reflects the true health of the whole business. A healthy gross margin with a poor net margin usually points to bloated overhead, while a weak gross margin signals a pricing or cost problem at the product level.

Profit Margin Formula

Gross Margin % = (Revenue − COGS) ÷ Revenue × 100

Net Profit Margin % = (Revenue − COGS − Operating Expenses) ÷ Revenue × 100

Markup % = (Revenue − COGS) ÷ COGS × 100

Note the difference between margin and markup — they use the same gross profit but a different denominator. Margin divides by revenue; markup divides by cost. A 50% markup is only a 33% margin. Confusing the two is one of the most common (and expensive) pricing mistakes small businesses make.

Example Calculation

Suppose a small product business has $100,000 in revenue, $60,000 in COGS, and $25,000 in operating expenses:

Gross profit = $100,000 − $60,000 = $40,000
Gross margin = $40,000 ÷ $100,000 × 100 = 40%
Net profit = $100,000 − $60,000 − $25,000 = $15,000
Net margin = $15,000 ÷ $100,000 × 100 = 15%
Markup = $40,000 ÷ $60,000 × 100 = 66.7%

So even though this business marks its products up by 66.7%, it keeps just 15 cents of every revenue dollar as profit once overhead is included.

Common Mistakes to Avoid

Confusing margin with markup. A 40% markup is not a 40% margin. Always be clear which one your pricing is based on.
Leaving costs out of COGS. Forgetting shipping, payment processing fees, or direct labor inflates your gross margin and hides real problems.
Ignoring operating expenses. A great gross margin means little if overhead eats all of it. Watch net margin, not just gross.
Using revenue instead of profit to judge health. Growing revenue with shrinking margins is a warning sign, not a win.
Not tracking margin over time. A single snapshot hides trends. Margins that slowly erode are how profitable businesses quietly become unprofitable.

Profit Margin for Small Business & Startups

For most small businesses, margin is the difference between a business that funds its own growth and one that constantly runs short of cash. Knowing your numbers lets you price with confidence, decide which products or services to push, and spot cost creep before it becomes a crisis. Many of the businesses we work with are surprised to learn their "best-selling" product is actually their least profitable once true costs are loaded in.

This is exactly where a fractional CFO or experienced bookkeeper earns their keep: building a clean chart of accounts so your COGS and operating expenses are categorized correctly, then turning your margins into pricing and cost decisions that actually move profit. A calculator gives you the number — the strategy is what changes it.

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Frequently Asked Questions

What is a good profit margin for a small business?

It varies widely by industry. Service businesses often run net margins of 15–30%, while retail and food businesses may run 5–10%. The more useful question is whether your margin is improving over time and covers your owner pay and reinvestment needs. Compare against businesses in your specific industry rather than a universal benchmark.

What is the difference between margin and markup?

Margin is gross profit as a percentage of revenue; markup is gross profit as a percentage of cost. They describe the same dollar profit but from different angles. A 50% markup equals a 33% margin. Pricing off the wrong one is a common cause of thin profits.

How do I calculate net profit margin?

Subtract both your cost of goods sold and your operating expenses from revenue to get net profit, then divide by revenue and multiply by 100. For example, $15,000 net profit on $100,000 revenue is a 15% net margin.

Why is my gross margin high but net margin low?

That usually means your product is priced and produced profitably, but your overhead — rent, salaries, marketing, software — is consuming the profit. The fix is cost control on operating expenses rather than repricing the product.

Does this calculator work for service businesses?

Yes. For service businesses, COGS is the direct cost of delivering the service (such as contractor pay or software directly tied to delivery), and operating expenses are your overhead. The margin formulas work the same way.