Calculate gross, operating and net profit margin from revenue and costs, or find the price you need to charge to hit a target margin.
The three profit margins
Gross margin = (revenue − cost of goods sold) ÷ revenue × 100
Operating margin = (gross profit − operating expenses) ÷ revenue × 100
Net margin = net profit ÷ revenue × 100
- Gross margin shows how profitable your product is before overheads.
- Operating margin shows how efficiently the business runs day to day.
- Net margin is what is left after everything, including interest and taxes.
Worked example
You sell a product for $50 that costs $30 to make or buy. Gross profit is $20, so the gross margin is $20 ÷ $50 = 40%. The markup on cost is $20 ÷ $30 = 66.7%.
To find the price for a target margin, divide the cost by (1 − margin): for a 40% margin on a $30 cost, the price is $30 ÷ 0.60 = $50.
Margin versus markup
These are often confused. Margin is profit as a share of the selling price; markup is profit as a share of the cost. A 50% markup is only a 33.3% margin. See the markup calculator.
What is a good profit margin?
It varies widely by industry. Grocery stores often run on low net margins, while software companies can have very high gross margins. Compare yourself with businesses in your own industry, and track your margin over time.
Frequently asked questions
How can I improve my margins?
Raise prices where customers see value, reduce cost of goods through better suppliers or less waste, and control overheads. Small improvements in price often have the biggest effect.
Can margin be negative?
Yes. A negative margin means costs exceed revenue and the business or product is losing money.
Related tools
Results are estimates for planning and education. They are not accounting, tax or legal advice. Check important figures with a qualified accountant.