How we calculate profit margin
Profit margin measures how much is left from every dollar sold after subtracting the costs you're accounting for. It's a percentage ratio, always relative to revenue.
Use the Profit Margin CalculatorFormula
profit = revenue − costs
margin (%) = (profit ÷ revenue) × 100
Variables
- revenue
- Total amount billed in the period, before any deductions (USD).
- costs
- Sum of the costs you want to subtract: only COGS for gross margin, or all costs and expenses for net margin.
Step-by-step calculation
- We subtract costs from revenue to get the period's profit.
- We divide profit by revenue to get the ratio.
- We multiply by 100 and round to two decimal places.
Worked example
Inputs
- Revenue: $10,000
- Costs: $6,750
Calculation
profit = 10,000 − 6,750 = 3,250
margin = 3,250 ÷ 10,000 = 0.325
Profit margin of 32.5% — $32.50 is left over for every $100 sold.
Common mistakes
- Dividing profit by cost instead of revenue: that's markup, not margin.
- Mixing gross and net margin when comparing periods.
- Forgetting to include taxes and platform fees within costs.
Frequently asked questions
Can margin exceed 100%?
No. Since profit is never greater than revenue, the ceiling is 100%. Values above that indicate markup was calculated by mistake.
What is a good margin?
It depends on the industry: retail often runs single-digit net margins, while software can exceed 40%.
All values are in US dollars (US$). Results are estimates and do not replace professional advice.