Profit Margin Calculator
Quickly determine the profitability of your business or products.
Your Gross Profit Margin
0.00%
Enter your data to see the result.
Understanding Profit Margin
What is Profit Margin?
Profit margin is a key indicator of a company’s financial health. It measures the degree to which a company or a business activity makes money. Essentially, it represents what percentage of revenue has turned into profit. A higher profit margin is always better, as it indicates the business is efficient at converting revenue into actual profit.
Gross Profit Margin vs. Net Profit Margin
This calculator determines your Gross Profit Margin, which is a crucial first step in understanding your profitability. Here’s the difference:
- Gross Profit Margin: Calculates profitability after subtracting the Cost of Goods Sold (COGS). This includes direct costs like raw materials and direct labor. It shows how efficiently you are producing and selling your products.
- Net Profit Margin: Calculates profitability after subtracting ALL expenses, including COGS, operating expenses, interest, and taxes. This shows the ultimate “bottom-line” profitability of the entire business.
Why is it Important?
- Pricing Strategy: Understanding your margin is essential for setting prices that cover costs and generate a profit.
- Financial Health Check: Tracking your profit margin over time can alert you to rising costs or pricing issues.
- Investor Confidence: A consistently healthy profit margin is a key indicator that investors look for when evaluating a business.