# Profit Margin Calculator

> Profit margin is profit as a percentage of revenue. Gross margin = (revenue - cost of goods sold) / revenue; net margin also subtracts operating expenses. With $100,000 revenue and $35,000 cost of goods sold, gross margin is 65%. Markup is different: it divides profit by cost, so the same numbers give a 185.7% markup.

Source: https://rankcert.com/tools/profit-margin-calculator
Free, no signup. Updated: 2026-10-29

## How to use it

1. Enter revenue for the period.
2. Enter cost of goods sold - what it costs to deliver what you sold.
3. Add operating expenses to see net profit and net margin alongside gross margin and markup.

## Margin and markup formulas

Margin divides by revenue, markup divides by cost. Mixing them up is the most common pricing mistake.

| Metric | Formula | Worked example |
| --- | --- | --- |
| Gross profit | Revenue - COGS | $100,000 - $35,000 = $65,000 |
| Gross margin | Gross profit / revenue | $65,000 / $100,000 = 65% |
| Net margin | (Revenue - COGS - expenses) / revenue | $25,000 / $100,000 = 25% |
| Markup | Gross profit / COGS | $65,000 / $35,000 = 185.7% |
| Price for a target margin | Cost / (1 - margin) | $35 / (1 - 0.65) = $100 |

## Questions

### What is a good profit margin?

It varies by industry. Software companies often run 70 to 90 percent gross margins; retail is usually 20 to 50 percent. For net margin, 10 percent is solid for most small businesses and 20 percent is strong.

### What is the difference between margin and markup?

Margin is profit divided by the selling price; markup is profit divided by cost. A product that costs $60 and sells for $100 has a 40% margin and a 66.7% markup.

### What goes into cost of goods sold for a SaaS business?

Costs that scale with delivering the product: hosting, third-party APIs, payment processing and customer support. Sales, marketing and R&D are operating expenses, not COGS.

### How do I price for a target margin?

Divide cost by one minus the target margin. To hit a 40% margin on a $60 cost, price at $60 / 0.6 = $100. Adding 40% to cost gives $84, which is only a 28.6% margin.

### Can profit margin be negative?

Yes. A negative margin means costs exceed revenue for the period. Early startups often run negative net margins while gross margin is positive and improving.

### Gross margin or net margin - which matters more?

Both answer different questions. Gross margin shows whether the product itself makes money per sale; net margin shows whether the whole business does after paying for growth and overhead.

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