Profit Margin Calculator
This calculator will answer the question on how to calculate the profit margin and will help you determine the exact selling prices for your products to increase the profit.
Profit margin calculator results
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Your sale price
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Your profit
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Gross margin
How to Calculate Profit Margin?
The calculation method is pretty simple. To calculate a profit margin value, you need to subtract the cost of your goods sold (other known as COGS) from your net sales (total revenue minus returns, discounts and allowances). Then you need to divide this figure by net sales value and the gross profit margin will come. To get the results in percentage, just multiply the number by 100.
Atlasmic’s profit margin calculator does the math for you, but if you are looking to do it manually, the formula would look like this:
X - Net sales value
Y - Cost of goods sold (COGS)
Z - Profit
X - Y = Z
Z / X * 100 = % Gross profit margin
Atlasmic’s profit margin calculator does the math for you, but if you are looking to do it manually, the formula would look like this:
X - Net sales value
Y - Cost of goods sold (COGS)
Z - Profit
X - Y = Z
Z / X * 100 = % Gross profit margin
What is the Average Profit Margin by Industry?
As a general rule, there are a lot of saying that a 10% net profit margin is the average profit margin. However, you should always consider, that every industry has a different average net profit margin. Here is the list of the average net profit margins for some of the most common small business categories in the United States:
Service businesses have the highest profit margins amongst other categories. The average for this category is about 18%, as the low operating costs and the number of repeat clients make the high-profit margin.
Real estate services have a profit margin of around 15% and can get as high as 20%. Tax services can climb even higher than 20%.
Restaurants usually have a profit margin that is about 12% and can vary 1-3%.
Retail has an average profit margin of 8%.
Service businesses have the highest profit margins amongst other categories. The average for this category is about 18%, as the low operating costs and the number of repeat clients make the high-profit margin.
Real estate services have a profit margin of around 15% and can get as high as 20%. Tax services can climb even higher than 20%.
Restaurants usually have a profit margin that is about 12% and can vary 1-3%.
Retail has an average profit margin of 8%.
How to Analyze Corporate Profit Margins?
Understanding corporate profit margins can help you get insights into a company’s current effectiveness in generating profits and potentially the company’s future. The key lesson to analyze corporate profit margins are to understand that the profit margin comes in 3 different levels: net profit, gross and operating profit.
Net profit margin is often referred to as the company’s profit for the accounting and is found at the bottom of the income statement. It displays if the company is generating net income. Taking it as a single point of truth might not be the best idea. That’s why there are more figures.
Gross margin provides insights into how the company is managing the production costs to produce income. The higher the margin, the more efficient the company is generating revenue.
The operating profit margin often shows why a particular company is outperforming other competitors. It shows how well the company manages to operate as it includes operating expenses, such as salaries, rent and leases instead of showing fixed costs.
Net profit margin is often referred to as the company’s profit for the accounting and is found at the bottom of the income statement. It displays if the company is generating net income. Taking it as a single point of truth might not be the best idea. That’s why there are more figures.
Gross margin provides insights into how the company is managing the production costs to produce income. The higher the margin, the more efficient the company is generating revenue.
The operating profit margin often shows why a particular company is outperforming other competitors. It shows how well the company manages to operate as it includes operating expenses, such as salaries, rent and leases instead of showing fixed costs.
What is a Good Profit Margin?
The money you earn from your business is not everything. However, if the company is being compared by some investors, you might have a look at your profit margin number. Generally, investors compare each company’s net profit margin with the industry standards. Sometimes they take benchmark indexes, such as S&P 500, Nasdaq or Dow. These can be around 10%, however, the good profit margin can be only calculated within the industry average. Anyways, if you are keeping this number way above the average - you might be a great salesperson!
What is the Difference Between Profit & Profit Margin?
The only big difference between these two values is that the profit margin is measured as a percentage while the profit margin shows every amount of money in earnings. Also, the increased amount of earnings does not always represent profitability. When you know your profit margin, you can make more effective sales plans and increase your revenue.
Frequently asked questions
What is the formula for calculating profit margins?
There are 3 different formulas for every level of profit margins calculation.
Net Profit Margin = (Net Income / Revenue) X 100
Gross Margin = (Total Revenue – COGS) / Total Revenue X 100
Operating Profit Margin = (Operating Income / Revenue) X 100
Gross Margin = (Total Revenue – COGS) / Total Revenue X 100
Operating Profit Margin = (Operating Income / Revenue) X 100
What is Cost of Your Goods Sold or COGS?
Firstly, the Cost of Goods Sold (COGS) is frequently known as “cost of sales” and can be displayed in a formula:
COGS = Beginning Inventory + Purchases during the period − Ending Inventory
If you are building a business, COGS can be usually found on an income statement, under the category sales, or revenue.
Example: if you had €10,000 of worth inventory at the beginning of the period and bought €2,000 extra and the ending inventory was worth only €4,000, your COGS value would be €8,000. Now as you know that your cost of goods sold for the year is €8,000 - you can start making better business decisions and maybe find new vendors with better pricing.
How to calculate operating margin?
The operating profit margin is calculated by dividing the operating profit by the total revenue and expressing that result as a percentage.
It can be solved in a formula:
Operating Profit Margin = (Operating Income / Revenue) X 100
Operating Profit Margin = (Operating Income / Revenue) X 100
What is net income?
Net income is the profit your business earn after you subtract the expenses and other allowable deductions. Expenses include selling, general, administrative, operating, depreciation, interest, taxes, and others.
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