Profit Margin Calculator

Profit margin is the percentage of revenue that is profit (Profit / Revenue x 100), while markup is the percentage added to the cost to get the selling price (Profit / Cost x 100). For example, if you buy something for $60 and sell it for $100, your profit margin is 40% but your markup is 66.7%. They use different bases for calculation.

Good profit margins vary significantly by industry. Retail businesses typically operate on 2-5% net margins, while software companies can achieve 20-40% or more. Service businesses often see 15-25% margins. A "good" margin is one that is competitive within your specific industry and sustainable for your business model.

Gross margin accounts only for direct costs of goods sold (COGS). Operating margin subtracts both COGS and operating expenses like rent, salaries, and utilities. Net margin subtracts all expenses including taxes and interest. Each gives a progressively more complete picture of profitability.

You can improve profit margins by: increasing prices if the market allows, reducing cost of goods through better supplier negotiations, lowering operating expenses, improving operational efficiency, focusing on higher-margin products or services, and reducing waste. Even small improvements in each area can have a significant cumulative effect.

Margin and markup are often confused because they both describe the relationship between cost and profit, but from different perspectives. Markup looks at profit as a percentage of cost (how much you add on top), while margin looks at profit as a percentage of the selling price (how much of each dollar is profit). A 50% markup results in only a 33.3% margin, which surprises many business owners.