Profit Margin Calculator
Profit Margin Calculator
Calculate net profit, profit margin, and markup percentages.
Report Bug Top-line revenue is vanity; bottom-line profit is sanity. The Profit Margin Calculator is the ultimate health check for any US business. While "Gross Margin" measures your manufacturing efficiency, "Net Profit Margin" tells the real story: after paying the landlord, the employees, and the IRS, is there any money left? Investors use these ratios to compare companies of different sizes on an equal playing field.
Whether you run a lemonade stand or a SaaS startup, tracking these two percentages is the only way to ensure long-term survival.
📉 The Two Critical Formulas
A healthy business needs to monitor both the product cost and the overhead cost.
Net Margin = (Revenue - All Expenses) / Revenue
Variables Defined:
- Revenue: Total sales income (Top Line).
- COGS: Direct Cost of Goods Sold (Materials + Direct Labor).
- OpEx: Operating Expenses (Rent, Marketing, Admin).
📊 Scenario: The "Busy but Broke" Cafe
Let's analyze a trendy Coffee Shop with $20,000 in monthly sales. They have great markup on coffee (Gross), but high rent (Net).
| INCOME STATEMENT ITEM | AMOUNT ($) | % OF REVENUE |
|---|---|---|
| Total Revenue | $20,000 | 100.0% |
| (-) Cost of Goods (Beans/Milk) | - $6,000 | 30.0% |
| GROSS PROFIT | $14,000 | 70.0% |
| (-) Rent, Staff, Utilities | - $13,000 | 65.0% |
| NET INCOME (Bottom Line) | $1,000 | 5.0% |
| Analysis: Excellent Gross Margin (70%), but terrible Net Margin (5%) due to high overhead. | ||
CFO Insight: This table explains why a business can sell a lot but still fail. In the US, a "Net Margin" below 5% is considered risky. A healthy small business usually aims for 10% to 20% Net Margin.
US Business Benchmarks
- Software (SaaS): The holy grail of margins. Gross Margins are often 80%+, and Net Margins can be 20-30% because there is no physical product cost.
- Retail / Grocery: Volume game. Grocery stores like Walmart operate on razor-thin Net Margins (1% - 3%) but make up for it by selling billions of dollars worth of goods.
- EBITDA: A standard US metric meaning "Earnings Before Interest, Taxes, Depreciation, and Amortization." It is a way to measure raw operational profitability before accounting tricks and tax strategies.
Frequently Asked Questions (FAQs)
What is a "good" profit margin?
It depends entirely on the industry. For a consultant, 50% is good. For a construction company, 5% is normal. Generally, across all US industries, a 10% Net Profit Margin is considered healthy.
Can Gross Margin be lower than Net Margin?
Impossible. Gross Margin is the starting point. Net Margin is what's left after subtracting more expenses. Net Margin will always be lower than (or equal to, if no expenses) Gross Margin.
How can I improve my Net Margin?
You have two levers: 1) Increase Price (risky for sales volume) or 2) Reduce Operating Expenses (negotiate rent, automate tasks, reduce waste). Most successful turnarounds focus on cutting OpEx first.
What is "Operating Margin"?
This is the middle ground between Gross and Net. It accounts for COGS and Operating Expenses but ignores Interest and Taxes. It shows how good the management team is at running the core business.
Why do investors look at Margin Trends?
A shrinking margin is a red flag. If your margin was 15% last year and 10% this year, it means your costs are rising faster than your prices (Inflation), or you are losing pricing power in the market.
