Profit Margin Calculator: Gross, Operating and Net Margin
Profit margin is profit expressed as a percentage of revenue. This calculator finds the margin from a cost and a selling price, and works backwards to the price you need to charge for a target margin — the calculation most small businesses get wrong.
Margin is not markup
Markup is profit as a percentage of cost; margin is profit as a percentage of price. An item costing 60 sold for 100 carries a 66.7% markup but a 40% margin. To hit a target margin, divide cost by (1 − margin): for a 40% margin on a cost of 60, price = 60 ÷ 0.6 = 100. Adding 40% to cost would only give 84 and a 28.6% margin.
The three margin levels
- Gross margin: (revenue − cost of goods sold) ÷ revenue. Measures product profitability.
- Operating margin: after overheads, salaries and marketing. Measures business efficiency.
- Net margin: after interest and tax. What actually remains.
Typical ranges by sector
Grocery retail runs on net margins of 1-3%, general retail 3-5%, restaurants 3-9%, professional services 15-25%, and software often 20%+ net with gross margins above 70%. Compare your margin against your own sector rather than a general average, and track the trend — a falling gross margin usually signals input cost rises or unmanaged discounting.
Key takeaways — Profit Margin Calculator
- Margin = profit ÷ revenue; markup = profit ÷ cost. They are not interchangeable.
- Price for a target margin with price = cost ÷ (1 − margin).
- Watch gross, operating and net margins separately — each tells a different story.