Profit Margin Calculator
Calculate profit margins, markup, and ROI instantly for smarter business decisions
Total income from sales
Cost of goods sold
Enter revenue and cost to calculate profit metrics
Quick Examples
What is Profit Margin?
Profit margin is a profitability ratio that measures how much profit your business makes for every dollar of revenue earned. It's expressed as a percentage and is one of the most important metrics for assessing business health and financial performance.
The profit margin formula is simple: (Revenue - Cost) ÷ Revenue × 100. A higher profit margin indicates that your business is more efficient at converting revenue into actual profit. Understanding your profit margins helps you make informed decisions about pricing, cost management, and business strategy.
Key Profit Metrics Explained
Profit Margin
Shows what percentage of revenue becomes profit. Formula: (Revenue - Cost) ÷ Revenue × 100. A 40% profit margin means you keep $0.40 of every dollar earned.
Markup
Shows how much you add to the cost to determine the selling price. Formula: (Revenue - Cost) ÷ Cost × 100. A 100% markup means you double the cost to set your price.
Return on Investment (ROI)
Measures the return you get on your investment. Formula: (Revenue - Cost) ÷ Cost × 100. An ROI of 150% means you earn $1.50 for every dollar invested.
How to Improve Your Profit Margins
Increase Prices Strategically
Small price increases can significantly impact margins without necessarily reducing sales volume.
Reduce Operating Costs
Negotiate better rates with suppliers, streamline operations, and eliminate waste to lower costs.
Focus on High-Margin Products
Promote and sell more of your products or services that have the highest profit margins.
Improve Operational Efficiency
Automate processes, train staff better, and optimize workflows to reduce time and cost per sale.
Frequently Asked Questions
What's a good profit margin?
A good profit margin varies by industry. Generally, a 10% net profit margin is considered average, 20% is good, and 5% is low. However, some industries like retail typically have lower margins while software companies often have much higher margins.
What's the difference between markup and profit margin?
Markup is the percentage added to cost to get the selling price, while profit margin is the percentage of the selling price that is profit. For example, a 50% markup results in a 33% profit margin. Markup is always higher than margin percentage.
How can I increase my profit margin without raising prices?
Focus on reducing costs through better supplier negotiations, improving operational efficiency, reducing waste, automating processes, and eliminating unprofitable products or services. Even small cost reductions can significantly improve margins.
Is this calculator suitable for all business types?
Yes! This calculator works for retail, e-commerce, services, manufacturing, and any business that sells products or services. Simply enter your revenue and cost figures to calculate your margins.