Profit Margin Calculator

What does a profit margin calculator do?

A profit margin calculator works out what share of each revenue dollar is profit: it subtracts cost from revenue, divides the result by revenue and shows the answer as a percentage, alongside the markup (the same profit divided by cost) and the selling price that a chosen margin would need.

This one also runs the full income-statement ladder, so you can see gross, operating and net margin from the same revenue figure.

At the page defaults — revenue $10,000 and cost of goods $6,000 — profit is $4,000, the margin is 40.00 % and the markup is 66.67 %. Add the Advanced figures (operating expenses $2,000, interest $500, tax $375) and the ladder ends at a net profit of $1,125, an 11.25 % net margin.

How do you calculate profit margin?

Margin % = (Revenue − Cost) ÷ Revenue × 100. Revenue sits in the denominator, which is what makes margin comparable across businesses of different sizes: two companies with a 40 % gross margin keep the same 40 cents of every revenue dollar before overheads, whether they sell $1 million or $1 billion.

The Securities and Exchange Commission describes gross profit, operating income and net income this way in its Beginners' Guide to Financial Statements, and the income-statement presentation behind them is FASB ASC 220.

Sell a product for $100 that cost $40 and the profit is $60, the margin 60 ÷ 100 = 60 % and the markup 60 ÷ 40 = 150 %. If cost is higher than revenue the margin is negative and the page labels the figure a loss; it never colours the headline for gain or loss.

Why is a 50 % markup not a 50 % margin?

Markup divides the same profit by cost instead of revenue. A retailer who marks up by 50 % buys for $100 and sells for $150: the profit is $50, the markup 50 % and the margin 50 ÷ 150 = 33.33 %.

The conversion is exact in both directions — margin % = markup % ÷ (100 + markup %) × 100, and markup % = margin % ÷ (100 − margin %) × 100 — so a 20 % margin is a 25 % markup, a 50 % margin is a 100 % markup and a 75 % margin is a 300 % markup.

Use markup when you start from a known cost and need a price, because it is a plain multiplication; use margin when you compare products or periods, because it is measured on the consistent revenue base. The markup calculator is the same engine with cost as the base, keystone and other presets, and a wholesale-to-retail chain.

What do gross, operating and net profit margin each include?

The ladder takes a further layer of cost off at each line, always divided by the same revenue. Gross margin deducts only cost of goods sold: materials, direct labour and manufacturing overhead (FASB ASC 330 defines what goes into inventory cost). Operating margin, also called EBIT margin, deducts operating expenses — salaries, rent, marketing and depreciation.

EBITDA adds depreciation and amortisation back and is a non-GAAP figure, which is why the page labels it so. Pre-tax margin deducts interest and other non-operating items, and net margin deducts the tax figure you enter.

On a sole proprietor's Schedule C the same ladder appears as line 3 (gross profit) and line 31 (net profit). The tax line on this page is your own figure, not a computed liability: the calculator does not know your entity type, deductions or state.

What is a good profit margin?

There is no benchmark that holds across industries, and this page does not type one. Margins differ with the cost structure: a business with heavy cost of goods and light overheads has a thin gross margin and a net margin close behind it; a people business has a wide gross margin that overheads then consume.

The useful comparisons are your own earlier periods and audited filings of listed companies in the same line of business — their income statements are on the SEC's EDGAR database under the same ASC 220 definitions this ladder uses. A margin that moved is more informative than a margin that merely exists.