Profit Margin Calculator

Calculate net profit, profit margin, and profit percentage quickly and accurately

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Net Profit

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Profit Margin

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Profit Percentage

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How It Works

  • Net Profit = Revenue – Cost
  • Profit Margin = (Net Profit / Revenue) × 100%
  • Profit Percentage = (Net Profit / Cost) × 100%

Profit Margin Calculator

Profit margin is one of the most important metrics for understanding the financial health of a business. With a profit margin calculator, you can quickly determine your net profit, profit margin percentage, and profit percentage of sales based on revenue and costs. This helps you measure efficiency, set better prices, and identify whether your business strategy is sustainable.

What is Profit Margin?

Profit margin represents the portion of revenue that turns into profit after covering all costs. It shows how much money a business actually keeps from sales once expenses are deducted.

  • High profit margin = efficient and profitable business.
  • Low profit margin = higher costs eating into revenue.

Unlike total profit, which is an absolute number, profit margin is expressed as a percentage. This makes it easier to compare performance across industries, companies, or time periods.

Profit Margin Formula

The basic formula for net profit margin is:

Net Profit Margin = Net Profit / Revenue

Where:

  • Net Profit = Revenue – Cost
  • Revenue = Selling Price

For example, if a company earns $100,000 in revenue and spends $80,000 on costs, its net profit is $20,000.

Net Profit Margin = 20,000 ÷ 100,000 = 20%

This means for every dollar earned, the company keeps 20 cents as profit.

Profit Percentage Formula

Profit percentage is another useful way to express profitability. It shows the profit as a percentage of cost rather than revenue.

Profit Percentage = Net Profit / Cost

Continuing the example above:

  • Revenue = $100,000
  • Cost = $80,000
  • Net Profit = $20,000

Profit Percentage = 20,000 ÷ 80,000 = 25%

So, the company made a 25% profit on top of its costs. This metric is often compared with markup percentage, which you can explore further using our Markup Calculator.

Types of Profit Margins

Profit margins can be broken down into different levels depending on which costs are included:

  • Gross Profit Margin – Revenue minus cost of goods sold (COGS). Useful for analyzing core production efficiency. You can calculate this using our Margin Calculator.
  • Operating Profit Margin – Takes operating expenses into account (like salaries, rent, utilities).
  • Net Profit Margin – The final figure after deducting all expenses, including taxes and interest.

Each layer of margin provides insight into a company’s cost structure and efficiency.

Why Profit Margin Matters

Profit margin is not just an accounting figure—it’s a business strategy compass. Here’s why it matters:

  • Pricing decisions – Helps determine whether your selling price is sustainable. You can test prices easily with our Price Calculator.
  • Investment potential – Investors and lenders evaluate profit margin before funding a business.
  • Industry comparison – Standardizes performance across competitors.
  • Goal setting – Businesses set profit goals (like reaching a 15% net margin) and track progress. For this, try the Profit Goal Calculator.

How to Calculate Profit Margin Step by Step

Here’s a straightforward process:

  1. Find your revenue (sales)
    Revenue = Selling Price × Units Sold
  2. Subtract your costs
    Net Profit = Revenue – Cost
  3. Divide net profit by revenue
    Net Profit Margin = Net Profit ÷ Revenue
  4. Multiply by 100 to get a percentage

Example:

  • Selling Price per unit = $50
  • Units Sold = 500
  • Total Revenue = $25,000
  • Total Cost = $20,000
  • Net Profit = $25,000 – $20,000 = $5,000

Net Profit Margin = 5,000 ÷ 25,000 × 100 = 20%

To double-check numbers like sales totals, you can also use our Sales Calculator.

Profit Margin vs. Markup

A common point of confusion is between profit margin and markup.

  • Profit Margin = Net Profit ÷ Revenue
  • Markup = Net Profit ÷ Cost

For example:

  • Selling Price = $120
  • Cost = $100
  • Profit = $20

Profit Margin = 20 ÷ 120 = 16.67%
Markup = 20 ÷ 100 = 20%

Both metrics are valuable, but markup is often used when setting prices, while profit margin is used to evaluate performance. You can explore this distinction further using the Profit Calculator.

Industry Benchmarks for Profit Margins

Different industries have different “healthy” profit margins. For example:

IndustryAverage Net Profit Margin
Retail2% – 5%
Restaurants3% – 6%
Software/Tech15% – 30%
Professional Services10% – 20%

Comparing your profit margin against industry standards helps you see whether you’re underperforming or excelling.

Common Mistakes in Calculating Profit Margin

Many businesses misinterpret their numbers. Some common pitfalls include:

  • Confusing profit with cash flow – Profit is not the same as money in the bank.
  • Forgetting hidden costs – Taxes, interest, and depreciation reduce actual margins.
  • Mixing markup and margin – Using markup when you mean margin can distort pricing.

Avoiding these mistakes ensures accurate financial planning and sustainable growth.

Using a Profit Margin Calculator

Manually calculating profit margins is possible, but for speed and accuracy, a profit margin calculator is the best tool. It automatically computes:

  • Net profit
  • Net profit margin
  • Profit percentage

By simply entering revenue and cost, you’ll instantly see your financial performance. This is especially helpful when experimenting with different prices or projecting profit goals.

A profit margin calculator simplifies one of the most important business metrics—understanding how much profit you make on sales. By knowing your net profit margin, profit percentage, and comparing them with industry standards, you gain powerful insights for pricing, strategy, and growth.

For deeper analysis, pair it with related tools like the Margin Calculator, Sales Calculator, and Profit Goal Calculator. With these tools, you’ll always know whether your business is on track to thrive.

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Cite this content, page, or calculator as:

Zaheer Ahmed. “Profit Margin Calculator” at https://calculatorcave.com/calculators/financial/profit-margin-calculator/ from CalculatorCave, https://calculatorcave.com – Online Calculators.