Calculate your profit margin percentage, gross profit, and markup to optimize your pricing strategy and maximize your business profitability.
Learn how to calculate and interpret profit margins for your business
Revenue is the total amount of money generated from sales before any expenses are deducted.
Cost of Goods Sold (COGS) includes all direct costs associated with producing the goods or services sold.
Subtract COGS from revenue to get your gross profit.
Divide gross profit by revenue and multiply by 100 to get the profit margin percentage.
Example: If your revenue is $10,000 and your COGS is $6,000:
Gross Profit = $10,000 - $6,000 = $4,000
Profit Margin = $4,000 / $10,000 × 100 = 40%
A 40% profit margin means for every dollar of revenue, you keep $0.40 as profit after accounting for the cost of goods sold.
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Find answers to common questions about profit margin calculations
Profit margin is a financial metric that measures how much profit a company makes for every dollar of revenue. It's expressed as a percentage and indicates the efficiency of a company in managing its costs relative to its revenue.
Gross profit margin considers only the cost of goods sold (COGS) in relation to revenue, while net profit margin considers all expenses including operating expenses, taxes, and interest. This calculator focuses on gross profit margin.
A "good" profit margin varies by industry. Generally, a 10% net profit margin is considered average, 20% is considered good, and 5% is considered low. However, some industries like software can have margins of 80-90%, while retail might have margins of 2-5%.
Markup is the percentage added to the cost price to determine the selling price, while profit margin is the percentage of profit in relation to the selling price. For example, a 50% markup on a $100 cost gives a $150 selling price, resulting in a 33.3% profit margin.
You can improve profit margin by increasing prices (if market allows), reducing cost of goods sold, optimizing operations to reduce waste, increasing sales volume to spread fixed costs, or focusing on higher-margin products/services.
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