SuanSupplyWhat is profit margin?
Profit margin is profit divided by revenue. It tells you how many cents of every dollar of sales you keep. A 40% margin means you keep $0.40 of each $1 you sell. Because it is a percentage, it lets you compare products, months or businesses of different sizes.
How do you calculate profit margin?
With the calculator's example numbers: a $24.99 sale with a $10 product cost leaves $14.99 of gross profit, a 60.0% gross margin. After $6.50 of fees, shipping and ads, net profit is $8.49, a 34.0% net margin.
What is the difference between gross and net margin?
| Margin | What it subtracts | Example |
|---|---|---|
| Gross margin | Only the cost of the goods sold | 60.0% |
| Operating margin | Goods plus running costs such as fees, shipping, rent and wages | Depends on what you include |
| Net margin | Every cost, including tax and interest | 34.0% here, before tax |
Gross margin shows whether a product is priced well. Net margin shows whether the business makes money once everything is paid. For a small online shop, a useful per-sale version subtracts the product cost, the platform fees, shipping and ads, which is what the "other costs" box is for.
How do you price for a target margin?
To get a 40% margin on a $10 cost, divide by 0.60: $16.67. To keep 40% after the $6.50 of other costs too, divide the full $16.50 by 0.60: $27.50. A common mistake is to add 40% to the cost instead ($14.00), which only gives a 28.6% margin.
Profit margin vs markup
Markup divides profit by cost; margin divides it by price. The same sale above has a 149.9% markup and a 60.0% margin. Our markup calculator converts between the two and has a full conversion table.
How can you improve your profit margin?
- Raise prices carefully, starting with your best sellers and products with few close competitors.
- Lower your cost of goods by ordering in larger batches, negotiating with suppliers or cutting packaging waste. Importers can check every cost line with the landed cost calculator.
- Watch selling fees. See exactly what Etsy keeps with the Etsy fee calculator, or compare resale apps with the reseller fee calculator.
- Make ads pay for themselves. Keep your ROAS above break-even with the ROAS calculator.
- Sell more per order with bundles and sets, so fixed costs like shipping are shared.
See your real profit every month, without a subscription
Our Profit & Loss Statement tool turns your income and expenses into a monthly P&L with margins and charts. Pay once, no account, and your data stays on your device.
Frequently asked questions
What is a good profit margin?
It depends on the industry and on what you subtract. Compare your margin with your own past months and with what your costs require, rather than with one universal number. Gross margins are always higher than net margins for the same business.
How do I calculate gross profit margin?
Subtract the cost of goods sold from revenue, divide by revenue and multiply by 100. ($24.99 − $10) ÷ $24.99 × 100 = 60.0%.
How do I calculate net profit margin?
Subtract every cost (goods, fees, shipping, ads, overhead and tax) from revenue, divide by revenue and multiply by 100.
What price do I need for a 50% margin?
Divide your cost by 0.5, which doubles it. A $10 cost needs a $20 price for a 50% margin.
Is profit margin the same as markup?
No. Margin is profit ÷ price and markup is profit ÷ cost. A 50% margin equals a 100% markup.
Can profit margin be negative?
Yes. If costs are higher than revenue, the margin is negative, which means each sale loses money.
This calculator gives estimates for planning, not accounting or tax advice. Margins on your financial statements may be calculated over a whole period rather than per sale.