Profit Margin Formula Explained " How to Calculate (2026)
Profit margin is one of the most fundamental measures of business health. It tells you what percentage of revenue you actually keep after covering costs. Whether you're running a shop, freelancing, or selling on Amazon, understanding your profit margin is essential for pricing, investment decisions, and business sustainability.
Net Profit Margin = Net Profit Revenue — 100
→ Calculate Profit Margin Free
What is Profit Margin?
Profit margin measures how much profit a business makes for every 1 (or $1) of revenue. There are three main types:
- Gross Profit Margin " After deducting cost of goods sold (COGS)
- Operating Profit Margin " After deducting operating expenses
- Net Profit Margin " After ALL expenses including taxes and interest
Gross Profit Margin Formula
Gross Profit Margin = (Gross Profit Revenue) — 100
Example: A retailer sells goods for 10,00,000. The goods cost 6,50,000 to buy.
Gross Profit = 10,00,000 6,50,000 = 3,50,000
Gross Profit Margin = (3,50,000 10,00,000) — 100 = 35%
Net Profit Margin Formula
Net Profit Margin = (Net Profit Revenue) — 100
Example (continuing above): After paying 1,50,000 in rent, salaries, and 40,000 in tax:
Net Profit = 3,50,000 1,50,000 40,000 = 1,60,000
Net Profit Margin = (1,60,000 10,00,000) — 100 = 16%
Markup vs Margin " Key Difference
| Metric | Formula | Based On |
|---|---|---|
| Margin | Profit Revenue — 100 | Selling Price |
| Markup | Profit Cost — 100 | Cost Price |
Example: Cost = 100, Sell = 150
Margin = 50 150 — 100 = 33.3% | Markup = 50 100 — 100 = 50%
What is a Good Profit Margin?
- → Retail: 5"20% net margin
- Software/SaaS: 15"30% net margin
- Manufacturing: 5"10% net margin
- • Restaurants: 3"9% net margin
Calculate Your Profit Margin Free
Profit Margin Calculator " Free Online Tool
Enter your revenue and costs to instantly calculate gross and net profit margin, plus markup percentage.
Calculate Profit Margin →For Amazon sellers, use our Amazon FBA Profit Calculator to include fees, storage, and shipping in your margin calculation.
FAQs
What is a good profit margin for small businesses?
A net profit margin of 10"20% is considered healthy for most small businesses. However, this varies greatly by industry. A 5% margin in grocery retail is excellent, while 5% in consulting would be very poor.
Is a higher profit margin always better?
Generally yes, but not always. Sometimes lower margins with higher volumes generate more absolute profit. Compare both margin % AND total profit rupees/dollars when evaluating business performance.