Gross Margin
Sales Margin
Net Profit Margin
Use our margin calculator to work out gross margin, sales margin and net profit margin percentages and figures for your products, services and overall business.
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Disclaimer: Whilst every effort has been made in building our calculator tools, we are not to be held liable for any damages or monetary losses arising out of or in connection with their use. Full disclaimer.
The margin calculator is a tool that allows you to get a grasp on the financial health of your business. Whether you're a small business owner, a freelancer, or a financial analyst, understanding your margins is the key to ensuring a healthy bottom line. Our calculator helps you quickly compute your margin, so you can focus on other things — like getting the right strategy and tactics for your business. The three main margins you want to track are your gross margin, your sales margin, and your net profit margin, so let's take a quick look at each one.
How to calculate your gross margin
Gross margin is the simplest metric. It looks at total revenue/profitability for a product, it doesn't take into account any overheads or operational expenses. It simply tells you how profitable a product or service is on its own, after the cost of producing that product or service has been deducted.
Within your calculation, after revenue minus the simple production costs for your particular item or service, the result, divided by the revenue, is the percentage for what would be your gross margin. So, you would use this formula:
- Product/Service Example: If you sell products for $25 each and it costs you $10 to produce, your gross margin would be:
($25 − $10) ÷ $25 = 0.6 → 60%
- Ecommerce/Wholesale Example: If your company earns $50,000 in revenue and your cost of goods sold came to just $20,000, then your gross margin would be:
($50,000 − $20,000) ÷ $50,000 = 0.6 → 60%
Display step counter
Let's go through a worked example. Use the gross margin tab of the calculator to follow these steps:
1
Work out your cost of goods sold (COGS):
The COGS is your all-in direct costs you incur through producing your goods or services. Let's say this figure is $8,000.
2
Then calculate your total revenue (sales):
Total revenue = the amount of money earned from selling your goods or services. Let's say yours is $15,000.
3
Calculate your gross profit:
Subtract your COGS from your total revenue figure to find your gross profit.
Example: $15,000 − $8,000 = $7,000
4
Divide your gross profit by the total revenue:
This gives you a decimal figure.
Example: $7,000 ÷ $15,000 = 0.4 → 0.47
5
Convert your figure to a percentage:
Multiply your figure by 100 to get a percentage.
Example: 0.47 × 100 = 46.6%
You can also see how your margins compare to those of similar businesses in your sector. If you're in retail, a gross margin comparison resource can help you benchmark your performance against competitors.
What is sales margin?
The sales margin measures how much money remains from the sale of a product or item or service after direct costs are deducted. It shows your level of profitability before operating expenses are factored in.
How to calculate sales margin
Sales margin is, at its most basic, quite straightforward to calculate by using the following formula — an equation that looks at the total revenue produced and minus any rebates or discounts plus the cost of delivery or return:
You can also see other tools and tips on the calculator for sales margin tool page.
Example of sales margin calculation
Item cost:
$40
Sale price:
$60
Sales Margin: (($60 − $40) ÷ $60) × 100 =
33.3%
Calculating markup
Markup is different to margin: rather than looking at the profit as a share of the sale price, it considers the profit as a proportion of the cost. Markup tells you how much more you're charging over cost. Use this formula:
Calculating sell price
If you know your desired margin and cost, you can calculate the sell price with this formula to reach your target margin. It's useful when pricing new products.
What is net profit margin?
Net profit margin is a metric to calculate the percentage of total revenue that remains after all costs, including taxes, interest, and overheads, are subtracted. It's a true picture of the overall profitability of your business — used to assess how well your company turns revenue into actual profit. So it's useful to know! And that's exactly what this margin calculator is designed to help you figure out.
How to calculate net profit margin
Calculating your net profit margin involves taking your total revenue figure, deducting all costs and expenses, including operating costs, interest, taxes, cost of goods sold, and any other expenses. Here's the formula:
You can also use our salary-to-hourly calculator for labor cost planning.
Example of net profit margin calculation
Let's say that a company earns $500,000 in total revenue and has $400,000 in total expenses:
Net Profit: $500,000 − $400,000 =
$100,000
Net Profit Margin: ($100,000 ÷ $500,000) × 100 =
20%
This means that for every $1 in revenue, the company keeps $0.20 as profit.
What is operating profit margin?
Operating profit margin is also known as return on sales or EBIT margin. It essentially tells us a measure of the percentage of revenue a business is able to retain as an operating profit, after accounting for its costs and expenses, but before interest and taxes. It's useful for comparing the operational efficiency of a company.
The difference between operating profit margin and net profit margin comes down to the way each metric handles taxes and interest. With operating profit, we're only looking at costs directly related to a business' day-to-day operations — things like materials, rent, staff wages, and other overheads. The result therefore tells us how well the core of the company is performing.
Net profit, on the other hand, goes further. It takes into account every cost from top to bottom: all of the operating expenses, plus interest payments, taxes, one-off charges, and any other outgoings. So while operating profit tells you about the efficiency of the business, net profit gives you the complete picture after all commitments have been met.
This is why both numbers matter. Together they give you a fuller understanding of a business' overall financial health.
How to calculate operating profit margin
To calculate the operating profit margin, divide your operating profit by your total net revenue and multiply by 100:
Example of operating profit margin calculation
Revenue:
$200,000
COGS + Operating expenses:
$160,000
Operating Profit: $200,000 − $160,000 =
$40,000
Operating Margin: ($40,000 ÷ $200,000) × 100 =
20%
Creating strategies and goals
Now you have your gross margin, sales margin, and net profit margins for your product, service, or your business as a whole — these values are useful insights and tools to drive performance. With a clear picture of your margins you can start setting realistic targets and deciding what goals would help you improve.
Before you go...
Our margin calculator is developed alongside our other financial calculator tools. For further performance and finance metrics, you may be interested in our CAGR and ROI tool and our percentage calculator, which may prove useful for future calculations.