Analyze your business's profitability.
Understanding your **profit margin** is essential for business success. This tool quickly calculates both your **gross profit margin** and **net profit margin** to provide clear, actionable insights into your **operating efficiency** and financial health.
Enter values to calculate margins.
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The **Profit Margin Calculator** is a crucial business tool used to evaluate a company's financial performance by measuring profit as a percentage of revenue. It provides two key metrics for a comprehensive **profitability analysis**:
Profit margins are simple ratios that compare profit to revenue. Our calculator uses the following steps:
Gross Profit Margin
Gross Profit = Revenue − COGS
Gross Margin (%) = (Gross Profit ÷ Revenue) × 100
Net Profit Margin
Net Profit = Gross Profit − Operating Expenses
Net Margin (%) = (Net Profit ÷ Revenue) × 100
Consider a small software company with the following figures for the last quarter:
Total Revenue: $100,000
Cost of Goods Sold (COGS): $60,000
Operating Expenses (Salaries, Rent, Marketing): $15,000
1. Gross Profit Margin
Gross Profit: $100,000 − $60,000 = $40,000
Gross Margin: ($40,000 ÷ $100,000) × 100 = 40.00%
2. Net Profit Margin
Net Profit: $40,000 − $15,000 = $25,000
Net Margin: ($25,000 ÷ $100,000) × 100 = 25.00%
What constitutes a "good" profit margin varies widely by industry due to differences in COGS and operational structure. These are rough estimates for general reference:
| Industry | Typical Gross Margin | Typical Net Margin |
|---|---|---|
| Software / Tech | 70% – 90% | 15% – 30%+ |
| Retail / eCommerce | 30% – 50% | 5% – 10% |
| Restaurants / Food Service | 50% – 65% | 3% – 7% |
Gross Margin measures the profitability of producing or sourcing the product itself (Revenue minus COGS). Net Margin measures the overall business's profitability (Revenue minus ALL expenses, including COGS, salaries, rent, taxes, etc.). Gross Margin tells you if your pricing is right; Net Margin tells you if your whole operation is efficient.
A negative margin means your business is losing money. A negative **Gross Margin** means your product's cost is higher than its sale price, which is unsustainable. A negative **Net Margin** means that while your product might be profitable (positive Gross Margin), your operating expenses are too high relative to your revenue.
You can improve Gross Margin by either increasing your average selling price or decreasing your Cost of Goods Sold (COGS). Strategies include negotiating better supplier prices, optimizing your production process, or increasing efficiency in your inventory management.
Accurate **profitability analysis** empowers better decision-making. Continue optimizing your business financials by utilizing related tools like the **Break-Even Point Calculator** to manage costs or the **ROI Calculator** to measure investment success.