Profit Margin Calculator
Calculate your gross profit margin from revenue and costs — and see how it differs from markup.
What is gross profit margin?
Gross profit margin is the percentage of revenue that remains after subtracting the cost of goods sold (or total direct costs). It's calculated as (Revenue − Costs) ÷ Revenue × 100, and it tells you how much of every sales dollar is actual profit versus what it cost you to deliver the product or service. A higher margin means more of each sale flows to the bottom line before overhead, taxes, and other expenses are considered.
Margin vs. markup: the confusion that costs businesses money
Margin and markup are both profit measures, but they use different denominators, and mixing them up leads to real pricing mistakes. Margin is profit as a percentage of the selling price (revenue): profit ÷ revenue. Markup is profit as a percentage of the cost: profit ÷ cost. Here's why this matters — a 50% markup on a $20 item ($10 profit, sold for $30) is only a 33% margin ($10 profit ÷ $30 revenue), not 50%. Business owners who think "I marked it up 50%, so my margin is 50%" are consistently underpricing their products, because markup percentages are always numerically higher than the equivalent margin percentage (assuming a positive profit). If you're setting prices based on a target margin, you need a different formula than if you're working from a markup percentage — see our markup calculator for that calculation.
What counts as a "good" profit margin?
It varies significantly by industry — software and services businesses often see gross margins of 70-90%, while retail and grocery businesses might operate on margins as thin as 2-5% due to high volume and low differentiation. Restaurants typically target 60-70% gross margin on food costs alone (before labor and rent). There's no universal benchmark; what matters is comparing your margin to others in your specific industry and tracking whether it's improving or eroding over time.
Frequently Asked Questions
What is the difference between margin and markup?
Margin is profit divided by revenue (selling price); markup is profit divided by cost. They describe the same dollar amount of profit but as a percentage of different bases, so markup percentages are always higher than margin percentages for the same sale.
How do I calculate profit margin?
Subtract your total costs from revenue to get gross profit, then divide gross profit by revenue and multiply by 100. For example, $100,000 revenue minus $65,000 costs equals $35,000 profit, which is a 35% margin.
What is a good profit margin for a small business?
It depends heavily on industry — service businesses often run 50-70%+ margins, while retail and grocery operate on much thinner margins of 2-10%. Compare your margin against others in your specific industry rather than a universal number.
Is gross margin the same as net margin?
No. Gross margin only subtracts direct costs (cost of goods sold) from revenue. Net margin goes further, subtracting all operating expenses, taxes, and interest too, so net margin is almost always lower than gross margin.
Why is my markup percentage higher than my margin percentage?
Because markup is calculated on cost (a smaller number) while margin is calculated on revenue (a larger number) — dividing the same profit by a smaller base always produces a bigger percentage.
How can I improve my profit margin?
Raise prices, reduce direct costs (negotiate with suppliers, cut waste), or shift toward higher-margin products and services. Even small price increases can meaningfully improve margin without a proportional loss in sales volume.
What costs should be included when calculating profit margin?
For gross margin, include only direct costs tied to producing the product or delivering the service — materials, direct labor, and manufacturing overhead. Rent, marketing, and administrative costs belong in net margin calculations, not gross margin.
Can profit margin be negative?
Yes — if your costs exceed your revenue, gross profit is negative, meaning you're losing money on every sale before even accounting for overhead. This is an urgent signal to raise prices or cut costs immediately.