Use this free profit margin calculator to see how much of every sales dollar your small business keeps. Enter your revenue and costs to get your gross profit margin, operating profit margin, and markup. You can also find the price you need to charge to hit a target margin.
Profit Margin Calculator
Use numbers from the same period, such as one month or one year. All amounts in U.S. dollars.
Price for a Target Margin
Find the selling price you need to reach a specific gross margin on one item.
Results are estimates for planning only.
What the Results Mean
- Gross profit margin shows how much of each sales dollar is left after the direct cost of what you sold. It measures how profitable your products or services are on their own.
- Operating profit margin shows what is left after you also pay operating expenses such as rent, salaries, and marketing. It is calculated before interest and income taxes.
- Markup compares gross profit to cost instead of to revenue. A 40% margin and a 66.7% markup can describe the same sale.
Profit Margin Formulas
- Gross profit = Revenue − Cost of goods sold
- Gross profit margin = Gross profit ÷ Revenue × 100
- Operating profit = Gross profit − Operating expenses
- Operating profit margin = Operating profit ÷ Revenue × 100
- Markup = Gross profit ÷ Cost of goods sold × 100
- Price for a target margin = Cost ÷ (1 − Target margin)
Example
A small business has $50,000 in revenue, $30,000 in cost of goods sold, and $12,000 in operating expenses for the year.
- Gross profit: $50,000 − $30,000 = $20,000, so the gross margin is $20,000 ÷ $50,000 = 40%
- Operating profit: $20,000 − $12,000 = $8,000, so the operating margin is $8,000 ÷ $50,000 = 16%
- Markup: $20,000 ÷ $30,000 = 66.7%
To earn a 40% gross margin on an item that costs $12, the price would need to be $12 ÷ (1 − 0.40) = $20.
For a deeper explanation, read our guide to small business profit margin. To understand what belongs in cost of goods sold, see our guide on cost of goods sold. You can also find your break-even point with our free break-even calculator.
Frequently Asked Questions
What is the difference between margin and markup?
Margin divides profit by the selling price. Markup divides profit by the cost. Because the cost is smaller than the price, markup is always a higher percentage than margin for the same sale.
What is a good profit margin for a small business?
It depends heavily on the industry. A grocery store and a consulting firm can have very different margins and both be healthy. Compare your margin with your own past results and with businesses like yours.
Can a profit margin be negative?
Yes. A negative margin means your costs were higher than your revenue for the period, so the business lost money.
This calculator provides estimates for planning purposes only. It is not financial or tax advice.