Profit Margin Calculator: Master Your Pricing Strategy

Profit margin determines whether you're building a business or running a hobby. Many entrepreneurs think they're profitable until proper margin calculations reveal they're losing money on every sale.

The Three Profit Margin Types

Gross Profit Margin: (Revenue - Cost of Goods) / Revenue × 100 Measures profitability before operating expenses.

Operating Profit Margin: (Operating Income) / Revenue × 100 Measures profitability after operating expenses, before taxes/interest.

Net Profit Margin: (Net Income) / Revenue × 100 Final profitability after all expenses, taxes, interest.

Real Calculation Example

Product selling for $100:

• COGS: $40
• Operating expenses: $30
• Taxes/interest: $10
• Net profit: $20

Gross margin: ($100-$40)/$100 = 60% Operating margin: $30/$100 = 30% Net margin: $20/$100 = 20%

Industry Margin Benchmarks

Software/SaaS: 70-85% gross, 10-25% net Retail: 25-50% gross, 2-5% net Restaurants: 60-70% gross, 3-6% net Manufacturing: 20-40% gross, 5-10% net Professional services: 50-70% gross, 10-20% net

Your target margins should exceed industry averages for healthy growth.

Markup vs. Margin Confusion

Markup: Profit / Cost × 100 Margin: Profit / Price × 100

$40 cost, $60 selling price, $20 profit: Markup: $20/$40 = 50% Margin: $20/$60 = 33.3%

Don't confuse them—margin is always lower than markup.

Price Setting Strategies

Cost-Plus Pricing: Cost × (1 + Desired Margin %) $40 cost, want 60% margin: $40 ÷ (1-0.60) = $100 price

Target Margin Pricing: Revenue × Margin % = Profit Goal Need $20 profit at 20% margin: $20 ÷ 0.20 = $100 revenue needed

Competitive Pricing: Match or beat competitors while maintaining minimum margin.

Improving Profit Margins

Increase Prices: Even 5% price increase with 95% customer retention dramatically improves profit.

Reduce COGS: Negotiate with suppliers, buy in bulk, find alternative materials, improve efficiency.

Operational Efficiency: Automate processes, reduce waste, optimize inventory, cut unnecessary expenses.

Upsell/Cross-sell: Increase average order value without proportional cost increase.

Minimum Viable Margin

Calculate your break-even margin: Total Fixed Costs ÷ Total Revenue

If fixed costs are $100,000 and revenue is $500,000, you need minimum 20% margin to break even. Target 30-40% margin for healthy profit buffer.

Frequently Asked Questions

What is a good profit margin? Depends on industry. 10-20% net margin is healthy for most businesses. Software can achieve 20-30%, while retail may be 2-5%.

How to calculate selling price from margin? Cost ÷ (1 - Desired Margin Decimal). Example: $50 cost, want 40% margin = $50 ÷ 0.6 = $83.33 price.

Difference between markup and margin? Markup is profit divided by cost. Margin is profit divided by selling price. Always communicate which you're discussing.

Can you have negative margin? Yes—losing money on each sale. Common in startups pursuing growth over profit, but unsustainable long-term.

Price strategically with our Profit Margin Calculator, Break Even Calculator, and ROI Calculator.