Profit Margin Calculator

Revenue

Cost

Profit Margin

30.00%

Profit Amount

12,600.00

12,600.00 of profit on 42,000.00 of revenue is a margin of 30.00%.

Formula

Margin = ((Revenue − Cost) ÷ Revenue) × 100

Profit margin is the share of revenue that remains as profit after cost is subtracted, expressed as a percentage of revenue. It answers "for every dollar that came in, how much was actually profit."

Margin is one of the most closely watched figures in any business, since it converts revenue and cost of any size into a single comparable percentage, a small shop and a large enterprise can be compared on margin even though their raw revenue figures are nowhere close.

Profit Margin Formula

Margin = Revenue − Cost Revenue × 100

Revenue: Total money brought in, shown in blue, matching the first field above.
Cost: What it cost to generate that revenue, shown in teal, matching the second field above.

Notice the denominator here is revenue, not cost. This is what separates margin from markup, which uses the same numerator arithmetic but divides by cost instead.

How to Calculate Profit Margin

Subtract cost from revenue
Divide the profit by revenue
Multiply by 100

Profit Margin Examples

Example 1, Coffee shop, Q1: $42,000 revenue, $29,400 cost

30.00%

Subtract cost from revenue 42,000 − 29,400 = $12,600 profit
Divide by revenue 12,600 ÷ 42,000 = 0.30
Multiply by 100 0.30 × 100 = 30.00%

A Q1 margin of 30%, a healthy quarter for a small coffee shop before costs rise in Q2.

Example 2, Same coffee shop, Q2: $44,000 revenue, $35,200 cost

20.00%

Subtract cost from revenue 44,000 − 35,200 = $8,800 profit
Divide by revenue 8,800 ÷ 44,000 = 0.20
Multiply by 100 0.20 × 100 = 20.00%

Revenue grew from $42,000 to $44,000, yet margin fell from 30% to 20%, costs grew even faster than revenue did, the classic shape of margin erosion.

Relationship to Percentage Decrease

Margin erosion, a shrinking profit margin over time, is a direct application of percentage decrease, applied to the margin percentage itself rather than to revenue. In the example above, margin fell from 30% to 20%, which is itself a 33.33% decrease when the two margin figures are compared using the homepage's formula: (30 − 20) ÷ |30| × 100. A margin can erode even while revenue climbs, which is exactly what makes tracking margin separately from raw revenue worthwhile.

Where Profit Margin Shows Up

Small Business Financial Health

Owners track margin period over period to catch cost creep before it erodes profitability to an unsustainable level.

Retail Category Management

Retailers compare margin across product categories to decide which lines to expand, discount, or discontinue.

Investor Due Diligence

Investors examine a company's margin trend over several periods as a signal of pricing power and cost discipline, not just its current revenue size.

Frequently Asked Questions

The questions that come up most often once the basic margin calculation is understood, especially around how it differs from markup and how margin erosion sneaks up on a growing business.

What's considered a healthy profit margin?

It depends heavily on the industry, grocery retail often runs margins under 5%, while software and services businesses commonly see 60% or higher. Comparing margin against your own industry's typical range is more useful than any single universal benchmark.

How is profit margin different from markup?

Margin is calculated on revenue (the selling price); markup is calculated on cost. The same dollar amount of profit produces a smaller margin percentage than markup percentage, see the markup calculator for that side of the relationship.

What does a negative profit margin mean?

It means cost exceeded revenue: the business lost money on that period or that sale rather than earning a profit at all.

How do I calculate profit margin for multiple products at once?

Sum all revenue and all cost across the products first, then apply the formula once to the totals, a blended margin, rather than averaging each product's individual margin percentage, which can be misleading if sales volumes differ.

Is gross margin the same as the profit margin this calculator computes?

This calculator computes a general profit margin from whatever you define as cost. If your cost figure is the direct cost of producing what you sold (not overhead, marketing, or admin), the result is specifically your gross margin.

How does margin erosion happen even when revenue is growing?

When costs grow faster than revenue, the margin percentage falls even as the raw revenue number climbs, see the worked example below, where revenue grows but the margin still drops from 30% to 20%.

What's the difference between net margin and the margin this calculator computes?

Net margin specifically subtracts every cost a business has, cost of goods, overhead, interest, taxes, before dividing by revenue. This calculator computes whatever margin your "cost" input represents, which could be net margin if you input your fully loaded costs.

How often should a business recalculate its profit margin?

At minimum every reporting period (monthly or quarterly), since a margin that looked healthy in one period can erode quickly if costs shift and pricing doesn't adjust to match.

Can profit margin exceed 100%?

No, since margin is profit divided by revenue, and profit can be at most equal to revenue (a cost of exactly zero), margin caps at 100% in the same way percentage decrease caps at 100% for a positive original value.

How do taxes affect profit margin?

If your cost input includes tax paid, taxes reduce the margin the same way any other cost does; if you're computing a pre-tax margin, taxes are a separate figure applied afterward and shouldn't be folded into the cost input here.