Profit margin calculator

Gross profit: $80,000
Gross margin: 40%
Operating profit: $30,000
Operating margin: 15%
Net income: $20,000
Net margin: 10%

A profit margin is a profit line divided by revenue. With $200,000 of revenue, $120,000 of cost of goods sold, $50,000 of operating expenses and $10,000 of interest and taxes, the gross margin is 40%, the operating margin 15% and the net margin 10%.

Formula

Gross profit = Revenue − Cost of goods sold
Gross margin = Gross profit ÷ Revenue
Operating profit = Gross profit − Operating expenses
Operating margin = Operating profit ÷ Revenue
Net income = Operating profit − Interest and taxes
Net margin = Net income ÷ Revenue

Worked example

Revenue is $60,000 and gross profit is $21,000. What is the gross margin?

$21,000 ÷ $60,000 = 0.35 = 35%.

Answer: 35%

From the lesson Margins on the P&L.

Do it in your head: Weight by revenue

Combining the margins of two parts of a business.

Turn each margin into profit dollars: revenue times the margin.
Add the dollars, then divide by total revenue.

The example, line by line

The example, line by line
Line	Amount	Margin (÷ revenue)
Revenue	$200,000	100%
− Cost of goods sold	$120,000
Gross profit	$80,000	40%
− Operating expenses	$50,000
Operating profit	$30,000	15%
− Interest and taxes	$10,000
Net income	$20,000	10%

Try three

Revenue is $93,000 and net income is $11,625. What is the net margin?

Your answer
Show the answer
12.5%
1. Margin = net income ÷ revenue = $11,625 ÷ $93,000 = 0.125 = 12.5%.
Division A has $5,000 of revenue at a 31% gross margin. Division B has $20,000 at 52%. What is the combined gross margin?

Your answer
Show the answer
47.8%
1. Gross profit: A = $5,000 × 31% = $1,550; B = $20,000 × 52% = $10,400.
2. Combined = ($1,550 + $10,400) ÷ $25,000 = 47.8%.
Revenue rises from $11,000 to $13,750. Gross margin falls from 32% to 18%; operating expenses rise from $2,500 to $3,500. What is the new operating profit? (Use a minus sign for a loss.)

Your answer
Show the answer
−$1,025.00
1. New gross profit = $13,750 × 18% = $2,475.
2. New operating profit = $2,475 − $3,500 = −$1,025 (it was $3,520 − $2,500 = $1,020).

That’s the idea. Keep going: 4 warm-up problems, no sign-up →

Learn it properly: Margins on the P&L → · the course: Margins on the P&L

Related lessons: Reading a P&L

Questions

What is the difference between gross and net margin?

Gross margin counts only the cost of the goods sold. Net margin counts every cost: operating expenses, interest and taxes too. Net is always the smaller of the two when those costs are positive.

What is a good profit margin?

It depends on the industry: a grocer and a software company live on very different margins. Compare with your own industry and with your own past months, not with one rule of thumb. NYU Stern’s Aswath Damodaran publishes margins by industry every January.

Do I divide by revenue or by costs?

By revenue, always. Dividing profit by cost gives a markup, not a margin.

Can a margin be negative?

Yes. If a profit line is a loss, its margin is negative: −$5,000 on $100,000 of revenue is a −5% margin.

How do I combine the margins of two products?

Weight by revenue: turn each margin into profit dollars, add them, and divide by total revenue. $30,000 at 70% and $10,000 at 30% is 60%, not the 50% a plain average gives.

Related free tools

Formulas and examples checked against Doing Math’s verified lesson Margins on the P&L, September 27, 2026. Every number on this page is computed by the calculator’s own code.