Business calculations
How to calculate profit margin
Profit margin shows how much of each unit of revenue remains as profit after the costs included in your calculation.
Open the profit margin calculatorProfit margin = (revenue − cost) ÷ revenue × 100
Worked profit margin example
A sale produces $150 in revenue and has $90 in included costs.
- Profit = $150 − $90 = $60.
- Divide profit by revenue: $60 ÷ $150 = 0.40.
- Multiply by 100: 40% profit margin.
Another useful reading is that costs consume 60% of revenue and profit accounts for the remaining 40%.
Gross, operating and net margin
“Profit margin” is incomplete unless the profit level is clear:
- Gross margin uses revenue minus cost of goods sold.
- Operating margin also accounts for operating expenses.
- Net margin uses net income after all included expenses, interest and taxes.
Use matching numerator and denominator for the same period. Comparing a monthly profit with annual revenue produces a meaningless percentage.
Margin versus markup
| Measure | Formula | $90 cost, $150 revenue |
|---|---|---|
| Margin | Profit ÷ revenue | 40% |
| Markup | Profit ÷ cost | 66.67% |
Both use the same $60 profit but different bases. To set a price for a 40% target margin from a $90 cost, divide cost by 1 − 0.40: $90 ÷ 0.60 = $150.
Interpreting unusual results
A negative margin means costs exceed revenue. A margin cannot be calculated when revenue is zero because the formula would divide by zero. A result above 100% may occur only in unusual cases such as negative included costs, so check the inputs and definitions.
Margins do not by themselves show cash flow, sales volume or return on investment. Use a consistent accounting basis when comparing periods or products.
Calculate margin online
The free Profit Margin Calculator returns profit and margin from the cost and revenue you enter. It is an arithmetic aid, not accounting or financial advice.