📉 Profit Margin Calculator
Calculate gross, operating, and net profit margins — and understand markup vs margin.
Our free Profit Margin Calculator computes gross profit margin, operating profit margin, and net profit margin from your revenue and cost figures — the three most important profitability metrics in business. Also covers the critical distinction between markup and margin.
The Three Profit Margin Formulas
Operating Margin = Operating Income ÷ Revenue × 100
Net Margin = Net Income ÷ Revenue × 100
Example — Retail Business
Revenue: $500,000 | Cost of Goods Sold (COGS): $300,000 | Operating expenses: $150,000 | Taxes: $12,000
Gross profit: $500,000 − $300,000 = $200,000 | Gross Margin: 40%
Operating income: $200,000 − $150,000 = $50,000 | Operating Margin: 10%
Net income: $50,000 − $12,000 = $38,000 | Net Margin: 7.6%
What Each Margin Tells You
- Gross margin measures production efficiency — how much of each revenue dollar remains after direct production costs. Low gross margin means high production costs relative to selling price.
- Operating margin measures business model efficiency — how much remains after all operating costs including rent, salaries, and marketing. Shows whether the core business is profitable before financing and taxes.
- Net margin is the "bottom line" — what's left for owners after all costs, including interest and taxes. The most comprehensive profitability measure.
Markup vs Margin — A Critical Distinction
These are NOT the same thing and confusing them causes pricing errors:
Margin % = (Price − Cost) ÷ Price × 100 (calculated on PRICE)
Same Item, Different Percentages
Item costs $60, sells for $100
Markup: ($100−$60) ÷ $60 × 100 = 66.7%
Margin: ($100−$60) ÷ $100 × 100 = 40%
A 66.7% markup = 40% margin. Always clarify which is being discussed.
Industry Margin Benchmarks
- Grocery retail: Gross 25–30%, Net 1–3% (razor-thin — high volume compensates)
- General retail (apparel, consumer goods): Gross 40–60%, Net 3–7%
- Restaurant: Gross 60–70% on food, Net 3–9%
- Software/SaaS: Gross 70–85%, Net 15–30% (at scale)
- Manufacturing: Gross 20–40%, Net 5–10%
- Healthcare: Gross 30–60%, Net 5–15%
- Consulting/services: Gross 60–80%, Net 15–25%
📉 Calculate your profit margins instantly with our free calculator.
Open Profit Margin Calculator →Frequently Asked Questions
What is a good profit margin?
"Good" varies enormously by industry. A 5% net margin is excellent in grocery retail but concerning in software. Always benchmark against your specific industry rather than a universal threshold. What matters is whether your margin is sufficient to sustain and grow the business, service debt, and return value to owners.
Why do companies with high revenue have low net margins?
High revenue with low net margin is common in industries with high COGS (grocery, manufacturing, retail) or high operating costs (airlines, restaurants). $1 billion in revenue at 2% net margin = $20 million profit. The absolute profit can be significant even when the margin percentage appears low.