Profit Margin Calculator
Calculate net profit margin, net profit, and profit as a percentage of total sales. You can work out profit margin by adding up your cost of doing business, subtracting this from your total revenue, and then dividing by total revenue. This is equal to net profit divided by revenue, or net income divided by net sales.
When you run a business you need to understand the relationship between your total sales and the costs associated with running your business. Calculating your profit margin and comparing it to a good rule of thumb margin for your industry can help you figure out when you need to increase sales, or decrease fixed and variable operating expenses (OPEX).
How to Calculate Profit Margin
For a given time period:
- Find your total revenue
- Find your COGS (cost of goods sold)
- Total your operating expenses (rent, payroll, advertising, etc.)
- Find interest paid
- Find taxes paid
- Add up lines 2 through 5
- Subtract that number from total revenue
- Divide the result by total revenue
- Multiply by 100 to get profit margin as a percentage
Profit Margin Formulas
You need two basic formulas to calculate profit margin percentage. First calculate net profit. Second, work out profit margin by dividing net profit by total revenue. Multiply by 100 to get the profit margin percentage.
- Net Profit = Revenue - Total Costs = Revenue - (COGS + OPEX + Interest + Tax)
- Net Profit Margin = Net Profit / Revenue * 100
Note that if you don't multiply by 100 you simply have your net profit in decimal form. This can help you think about your net profit as it compares to revenue. For every dollar in revenue how much were you able to keep as profit? For instance if your net profit margin as a decimal is 0.17, you can say that for every dollar in revenue you got to keep 17 cents as profit.
Our profit margin calculator also provides a percent value for ROI (return on investment), or net profit as a percentage of costs. To calculate profit percentage you divide net profit by cost.
Profit Percentage = Net Profit / Cost
If your net profit percentage is 60% for example, you can say that for every dollar in expenses you made 60 cents in profit.
Profit percentage is similar to markup percentage when you calculate gross margin. This is the percentage of the cost that you get as profit on top of the cost.
Important Points About Margin Calculations
If you're calculating profit margin for one item, your revenue is the same as your selling price for that item. Similarly, revenue is your total sales when calculating profit margin on a group of items for a specific time period.
What's the difference between profit margin, net profit margin, and gross profit margin? People frequently use different terms when referring to financial margins. Here are some financial margin synonyms, and links to CalculatorSoup margin calculators.
- Profit margin typically refers to net profit margin. The net profit margin calculator is on this page, above.
- Gross profit margin is also known as gross margin. For gross profit, gross margin percentage and mark up percentage, see the Margin Calculator.
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