Profit Margin Formula
The Profit Margin formula is a vital financial metric that reveals how much profit a business makes from its total revenue, indicating its overall efficiency and health.
Bottom Line
The Profit Margin formula is a vital financial metric that reveals how much profit a business makes from its total revenue, indicating its overall efficiency and health.
Profit Margin Calculator
Calculate gross margin and markup, or set prices from desired margin percentages.
On This Page
Formula
Copy the exact expression or work through it step by step below.
Profit Margin = Net Profit / Revenue x 100 Variables
PM
Profit Margin
Net profit as a percentage of revenue, showing how many cents of each sales dollar become profit after all costs. The headline efficiency measure.
NP
Net Profit
Net profit in currency units: revenue minus all costs (COGS, operating expenses, interest, taxes). The numerator.
Reve
Revenue
Total sales revenue for the period in currency units. The denominator; use net revenue after refunds and discounts for an honest figure.
Step By Step
- 1
Set the baseline case with the real calculator inputs.
Mode = Calculate margin, Revenue = $100,000, Cost = $85,000
- 2
Decide which profit line you are measuring (gross, operating, or net) and use the matching cost set, since the three margins answer different questions.
Revenue 200,000 less all costs of 170,000 leaves a 30,000 net profit.
- 3
Apply the formula and read the first calculator outputs, not just the headline assumption.
The calculator lands with profit at $15,000 and gross margin percent at 15.0%.
- 4
Re-run at the gross, operating, and net levels together, since a healthy gross margin can still end in a thin net margin once overhead is counted.
A 65% gross margin can collapse to a 15% net margin after operating costs.
Worked Example
Profit Margin sample case
Mode
Calculate margin
Revenue
$100,000
Cost
$85,000
The calculator uses a single cost input, so total costs of 85,000 go in one field. Profit = Revenue - Cost = 100,000 - 85,000 = $15,000, and gross margin percent = 15,000 / 100,000 x 100 = 15.0%.
The calculator lands with profit at $15,000 and gross margin percent at 15.0%.
Common Variations
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Open →Sources & References
- Profit Margin: How to Calculate It and Why It's Important — Investopedia
- How to Calculate Profit Margin — Shopify
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