Profit Margin Calculator

For the most part, a 20 percent profit margin or higher is considered good. The higher the profit margin, the more room you leave for errors, market fluctuations, and industry changes. Margins as low as 10 percent are considered average. Anything at or below 5 percent is considered a low margin. 
Of course, what’s considered high profit margin (or low one) changes, sometimes dramatically, from industry to industry. The restaurant industry, for example, has an average profit margin of three to five percent. So consult your industry standards when deciding if your profit margin is healthy. 

The profit margin calculation is quite simple. Most of the leg work goes into ensuring you have the correct information to plug into the calculator. There are five steps to calculating your profit margin. They are
Determine your cost of goods sold (COGS): That includes all the costs of producing, marketing, and selling your products and services. 
Determine your revenue: This is the price point at which you sell your products and services.
Calculate gross profit: Subtract the COGS from revenue. 
Calculate profit margin (into a decimal): Divide gross profit by revenue.
Convert to a percentage: Multiply profit margin as a decimal by 100 and add a percent sign. 
Now that you have all the steps, you can plug each piece into the online calculator to get an immediate result. You can also work through the calculation by hand. Let’s work through a sample calculation together.

The business owners at the Company Store, a local outdoor equipment retail store, want to determine their profit margins for a new tent. The cost to purchase and sell the tent is $48. The selling price for the tent is $130. Their gross profit is then $82.
$82 gross profit = $130 revenue - $48 COGS
Now we can calculate the profit margin by dividing the gross profit by revenue. Our profit margin for the tent is then $
0.63 = $82 gross profit / $130 revenue
Finally, we convert the decimal form into a percentage by multiplying it by 100. For our tent, the profit margin is 63%.
63% = 0.63 x 100
This calculation does not account for the sale price of the item

There’s no shortage of ways to pump up the profit margin. But some strategies will make more sense based on your business, brand, product, and industry. Below are some ideas to help you develop your next strategy. 

• Reduce the cost of goods sold, for example by shopping around for suppliers.
• Increase marketing efforts and focus on building your marketing channels, especially the ones that show the most promise for return.
• Focus on increasing average order value through minimum order incentives. For example, offering free shipping on orders over $100.
• Focus on earning customer reviews and encourage happy customers to review your product. 
• Focus on ways to make your products and services “stickier,” such as a loyalty program, subscription discount, or other incentives. 
• Raise your prices or rates.

Markup refers to the amount of money an item is sold for in relation to the cost of the product. For example, your business purchases a lot of lamps at $28 a piece. If the lamps are sold for $50, your markup percentage is 56%. 
Markup doesn’t account for the cost of selling the goods (e.g., marketing, paying salespeople, etc.), so it doesn’t show the profit a company makes from selling an item.

While both are efficiency metrics, they’re not the same. Gross margin accounts for revenue minus the cost of goods sold, which leaves out some important business expenses, like operating costs. The formula looks like this:
Gross Profit Margin = 100 x ((Sales − Cost of Goods Sold) ÷ Sales)
Net profit margin includes those additional operating expenses. So net profit margin provides a more accurate picture of a business’s profitability. The formula, for comparison, looks like this:
Net Profit Margin = 100 x ((Gross Profit − (General Expenses + Administrative Expenses + Interest on Loans + Taxes)) ÷ Sales) 
Because many of these expenses are variable costs, you can see how net and gross profit margin can easily change from month to month and product to product.