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Profit margin calculator

Enter revenue, cost of goods sold, operating expenses, interest and taxes to see gross, operating and net profit margins together, the way an income statement shows them.

Total sales for the period, without sales tax or VAT.

Stock, materials and direct labor for what you sold.

Rent, salaries, marketing, software and other running costs.

Interest paid on loans and credit lines.

Income taxes (optional)

Income tax for the period.

Net profit margin
12%
Net profit $60,000 on $500,000 of revenue

Income statement

LineAmountShare of revenue
Revenue$500,000100%
Cost of goods sold−$300,00060%
Gross profit$200,00040%
Operating expenses−$120,00024%
Operating profit$80,00016%
Interest−$5,0001%
Pre-tax profit$75,00015%
Taxes−$15,0003%
Net profit$60,00012%

The right-hand column is each line as a share of revenue. For a profit line, that's its margin.

Margins at a glance

Gross margin40%
Operating margin16%
Net margin12%

You keep $0.12 of every $1 of sales after all costs and taxes.

  • Nothing is uploaded
  • Free, no sign-up
  • Works on phone and desktop

How to calculate gross, operating and net profit margin

  1. 1

    Open your income statement (also called a profit and loss report) and pick one period, such as last year or last quarter.

  2. 2

    Enter revenue, cost of goods sold and operating expenses for that period.

  3. 3

    Add interest and income taxes if you have them, as an amount or as a rate on pre-tax profit.

  4. 4

    Read the gross, operating and net margins, and see how much of each dollar of sales is left at every level.

Features

  • Three margins at once

    Gross, operating and net margin from one set of numbers, laid out the way an income statement shows them.

  • Tax as an amount or a rate

    Enter the tax you paid, or a rate that is applied to pre-tax profit and skipped when there is a loss.

  • Margins at a glance

    A simple bar for each margin shows how much of your revenue survives each layer of costs.

  • Every line as a share

    Cost of goods, overheads, interest and tax are each shown as a percentage of revenue, so you can see where the money goes.

The three margins and what each tells you

  • Gross margin = (revenue − cost of goods sold) ÷ revenue × 100. It shows how well your prices cover what you sell. It moves with supplier prices, production costs and discounting.
  • Operating margin = (gross profit − operating expenses) ÷ revenue × 100. It shows how efficiently the business runs before financing and tax: whether rent, salaries and marketing are in proportion to sales.
  • Net margin = net profit ÷ revenue × 100. The bottom line after every cost, including interest on debt and income taxes.

Two businesses, side by side

An online store sells $850,000 in a year. Its stock costs $510,000, running costs come to $255,000, it pays $12,000 of interest on a loan, and tax is 21% of pre-tax profit (the federal rate for C corporations; state taxes would come on top):

Online storeAmountMargin
Revenue$850,000
Cost of goods sold−$510,000
Gross profit$340,00040%
Operating expenses−$255,000
Operating profit$85,00010%
Interest−$12,000
Taxes−$15,330
Net profit$57,6706.8%

A consulting firm bills $420,000. The consultants' pay that goes directly into client work, $168,000, is its cost of revenue. Office, software and sales costs are $150,000, it has no debt, and it pays $20,000 in tax:

Consulting firmAmountMargin
Revenue$420,000
Cost of revenue−$168,000
Gross profit$252,00060%
Operating expenses−$150,000
Operating profit$102,00024.3%
Taxes−$20,000
Net profit$82,00019.5%

The store keeps 40% of each sale after stock but only 6.8% at the bottom line, while the firm starts from a 60% gross margin and ends at 19.5%. Neither is "better": a store works on volume and stock turnover, a consultancy on billable hours. That's why margins are most useful compared with similar businesses and with your own past results.

Where each dollar goes

Margins are easiest to grasp per dollar of sales. Take a café with 70% gross margin: of every $100 it takes, $30 goes on food and drink, $62 on staff, rent and other running costs, $2 on interest and $1.50 on tax. That leaves $4.50, a 4.5% net margin. A small change in any cost line moves the bottom line a lot when it's that thin.

Business margin vs per-item margin

The margin calculator looks at one product: a shirt that costs $18 and sells for $30 has a 40% margin. That's a gross margin for a single item. This calculator looks at the whole business over a period, after the costs that no single product carries, such as rent and salaries. A healthy per-item margin can still leave a thin net margin if overheads are high. To set prices that cover those overheads, use the markup calculator, and to find how many sales pay for your fixed costs, the break-even calculator.

Reading the margins together

  • Gross margin slipping: costs are rising faster than prices, or discounts are eating into sales. Test a sale price in the discount calculator before you run it.
  • Gross margin steady, operating margin falling: overheads are growing faster than revenue.
  • Operating margin healthy, net margin thin: interest on debt or tax is taking a large share.

Use revenue without sales tax or VAT, since that money belongs to the tax authority. If your sales figures include VAT, take it out first with the VAT calculator. The numbers here are arithmetic on the figures you enter, not accounting, tax or financial advice; for those, talk to an accountant.

Frequently asked questions

What is the difference between gross, operating and net margin?

Each one takes more costs off revenue. Gross margin subtracts only the cost of goods sold. Operating margin also subtracts running costs such as rent, salaries and marketing. Net margin subtracts everything, including interest and income taxes, and is the share of revenue the business actually keeps.

How do I calculate net profit margin?

Divide net profit by revenue and multiply by 100. A business with $420,000 of revenue and $82,000 of net profit has a net margin of 19.5%.

What counts as cost of goods sold?

The direct cost of what you sold: stock bought for resale, raw materials, direct production labor and inbound freight. Rent, office staff, marketing and software are operating expenses, not cost of goods. Service businesses often call it cost of revenue or cost of sales: the wages and subcontractors that deliver the work.

Is operating profit the same as EBIT?

Often it is close. EBIT means earnings before interest and taxes, and it can include non-operating items such as a gain on selling equipment, which operating profit leaves out. For most small businesses with no such items, the two are the same number.

What is a good net profit margin?

It depends on the industry. Grocery stores and distributors can run on low single-digit net margins because of high volume, while software and professional services usually need much higher ones. The fairest comparisons are with your own past years and with businesses like yours.

Should I use monthly or yearly figures?

Either, as long as every number covers the same period. A full year smooths out seasonal swings and one-off bills, so it gives a steadier margin. Monthly figures are useful for spotting a trend early.

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