Profit Margin Calculator

Find out what percentage of sales your business is retaining as profit and narrow in on the optimal price for your product with our easy-to-use profit margin calculators.

Markup-based profit margin calculator

Calculate your gross profit and optimal price for your product or service using your desired markup and costs associated with it.
Loading...

Revenue-based profit margin calculator

Calculate your gross profit margin using your sales and Cost of Goods Sold.
Loading...

Pull back the curtain on gross profit margin

What is gross profit margin?

Profit margin is an important financial metric that indicates the percentage of profit your company earns from revenue after paying out COGS (Cost of Goods Sold). The higher the profit margin, the more efficiently your business is converting sales into profits.

See Why It Matters
calculator graphic

What makes a healthy profit margin

Profit margins will vary across industries due to differences in operating costs, business structure, and competition. For example, a consulting firm may have higher profit margins but a narrower market for their services while SaaS companies may have much higher margins due to lower costs of scaling but high price sensitivity due to fierce competition.

Compare Profit Margins
Pie chart referencing profit margins

How to grow your profit margin

If you’re not hitting your desired profit margin, chances are there are opportunities to reduce your costs, increase your revenue, or both. Look for swelling labor budgets, negotiate with vendors, and eliminate unused resources like unnecessary tools. Boost your revenue by upselling existing customers, review your pricing, and prioritize high-margin products.

Improve Your Profit Margin
Graph showing how you can pull different levers to improve your profit margins

Key points on profit margin

Your profit margin is the percentage of your business’ revenue left over after business expenses. The higher the percentage, the greater the profit.

For example, a business with a 10% profit margin and $100K in monthly revenue would have a monthly profit of $10K ($100K x 10% = $10K).

In the business world, profit margin is viewed as a reflection of the effectiveness of the business’s pricing, how well it manages expenses, and how efficiently it produces and monetizes its product or service.

There are three primary ways to calculate and analyze profit margin, and each is reflective of a company’s operating efficiency. Here’s a look at the three core analysis methods:
  • Gross margin: This is typically used to determine the profitability of a specific product or service, rather than the entire business. The gross margin only considers your revenue and COGS, and can help you better understand whether you’re committing too much time or resources to a specific product or service, or if you need to revisit pricing.
  • EBITDA margin: EBITDA stands for earnings before interest, depreciation, and amortization expenses. This form of profit margin reveals how effectively a business can turn revenue into profits after accounting for COGS and OPEX (rent, payroll, etc.), but not interest or taxes. The expenses considered in the EBITDA margin analysis are the costs associated with keeping the business up and running. As such, EBITDA margin is considered a more accurate measurement of profitability than gross margin, but not quite as precise as net margin.
  • Net margin: This measures profit as a total percentage of revenue. The net margin takes into account all operating and non-operating expenses (COGS, OPEX, interest, taxes) to provide insight into the efficacy of the business model and forecast future profits. Net margin is considered one of the best indicators of a company’s profitability because it accounts for all expenses.
As you go from gross margin, to EBITDA margin, to net margin, note that each measurement includes an increasing number of business expenses. This means your net margin will typically be reflected as lower than your gross or EBITDA margin — but it also means that this measurement is the most holistic and accurate indicator of profitability.

Here’s how to calculate gross profit margin:Subtract COGS from revenue, then divide that number by the revenue. The formula is as follows: Gross margin = ([revenue - COGS] / revenue) x 100For example, if you have a product or service that you sell for $100, and the COGS of that product or service is $80, you’d have a gross margin of 20% — or, ([$100 - $20] / $100) x 100 = 20%

EBITDA stands for earnings before interest, depreciation and amortization expenses. As such, EBITDA margin is specifically focused on operating profit and cash flow. It’s calculated by subtracting COGS and OPEX from revenue, and then dividing that number by revenue. The formula is as follows:

EBITDA margin = ([revenue - COGS - OPEX] / revenue) x 100
A business with annual revenues of $1M but $850K in combined COGS and OPEX would have an EBITDA profit margin of 15% — or, ([$1M - $850K] / $1M) x 100 = 15%.

The net profit margin is measured by subtracting a business’s total expenses from its total revenue, and dividing the result by the business’s total revenue. The formula is as follows:Net profit = ([revenue - COGS - OPEX - interest - taxes] / revenue) x 100
If, for example, your business generated $500K in revenue last year and the sum of all expenses, interest paid, and taxes came out to $450K, your net profit margin would be 10% — or, ([$500K - $450K] / $500K) x 100 = 10%).

There is no universal healthy gross profit margin — rather it will vary according to industry. Differences in operating costs, pricing structure, and competition are key factors to consider when evaluating your gross profit margin. For a snapshot of just how varied profit margins across industries can be, here are a few examples of average profit margins from data collected by NYU Stern.

Advertising: Gross margin of 29.91% and net margin of 3.00%
Software: Gross margin of 72.38% and net margin of 22.94%
Business and consumer services: Gross margin of 33.70% and net margin of 7.09%
Apparel: Gross margin of 54.28% and net margin of 2.98%

There are essentially two avenues to increasing your business’ profit margin: increasing revenue and lowering costs and operating expenses.To boost revenue, you can:
  • Gain more share of wallet or average order value (AOV) by upselling and cross-selling existing customers to new products, offering bundled products, or offering incentives for minimum orders such as free shipping.
  • Adjust your price, provided the market for your product can accommodate it.
  • Prioritize higher-margin products and services. You might evaluate your product offering and find that some of your products don’t yield enough revenue relative to the costs associated with providing them.
To lower costs, you might:
  • Audit your current Cost of Goods Sold (COGS) and operating expenses to see where there are opportunities to cut back.
  • Look at labor and staffing costs to find areas where you could become more efficient.
  • Eliminate unused office space, tools, and subscriptions.
  • Negotiate discounts with vendors and compare pricing with others.

Keep crunching your numbers

Cash burn rate calculator

Find out how fast your business is spending its available capital with this quick and easy-to-use cash burn rate calculator.

SaaS magic number calculator

Quickly get a pulse on how sticky your subscription-based service is with our intuitive SaaS magic number calculator.

Take your business to the next level

Join Mercury Raise, our free support program for founders, and get access to expert mentorship, fundraising help, and educational resources.
Explore Mercury Raise

Disclaimers and footnotes

    Mercury is a fintech company, not an FDIC-insured bank. Banking services provided by Choice Financial Group, Column N.A., and Evolve Bank & Trust, Members FDIC. Deposit insurance covers the failure of an insured bank.