Take the sale from above: revenue $80, cost $50. Profit is 80 − 50 = $30, and 30 ÷ 80 = 0.375 — a 37.5% margin. The gross margin formula is this same line with only direct costs counted: (Revenue − COGS) ÷ Revenue × 100. Subtract operating expenses too and it's operating margin; take out interest and taxes as well and what remains is net profit margin.
Free Profit Margin Calculator
See how much of every dollar you actually keep. Check the margin on a single sale, find the price that hits your target margin, or run your whole business through gross, operating and net margin — instantly.
What is profit margin?
Profit margin is the share of your revenue that's actually profit — what's left of every dollar after costs, expressed as a percentage. Sell something for $80 that costs you $50, and $30 of the price is profit: a 37.5% margin. It's the one number that makes businesses of any size comparable, because it ignores how big the revenue is and asks only how much of it you keep.
A profit margin calculator does the division for you — in both directions. This one answers the three questions that actually come up: what's my margin on this sale, what price do I charge to hit a target margin, and what are my gross, operating and net margins across the whole business. The key detail people miss: margin is always measured against revenue, never against cost. Profit against cost is a different number — markup — and confusing the two is the most expensive pricing mistake there is.
How to calculate profit margin
Four steps from a price and a cost to a percentage you can act on.
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Start with revenue — the full amount the sale brings in, or your total sales for the period.
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Subtract costs to get profit. Only direct costs gives gross profit; all operating costs gives operating profit; everything including interest and taxes gives net profit.
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Divide the profit by revenue — not by cost. Dividing by cost gives you markup, which is a different (and always bigger) number.
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Multiply by 100. The result is your profit margin — gross, operating or net, depending on which costs you subtracted in step 2.
The profit margin formula
One line of math — and its reverse, for when you know the margin you want and need the price.
Profit margin = (Revenue − Costs) ÷ Revenue × 100
Pricing for a target margin
The reverse formula is Price = Cost ÷ (1 − margin). To earn a 40% margin on a $50 cost: 50 ÷ 0.6 = $83.33. The classic mistake is multiplying instead — $50 × 1.4 = $70 feels like a 40% margin but delivers only 28.6%. If you price by adding a percentage to cost, you're systematically underpricing.
Gross vs operating vs net margin
Same revenue, three margins — each one subtracts a deeper layer of cost. Here's a business with $120,000 revenue read at all three levels.
Gross margin
Revenue minus the direct cost of what you sold — materials, direct labor, fulfillment. It answers: is the thing I sell profitable at all, before the business around it?
$120k − $54k COGS = $66k → 55%Operating margin
Gross profit minus the cost of running the business — rent, salaries, software, marketing. It answers: does the business model work, not just the product?
$66k − $36k OpEx = $30k → 25%Net margin
What survives everything, including interest and taxes. It answers the only question that compounds: how much of every dollar of revenue do the owners actually keep?
$30k − $9k tax & interest = $21k → 17.5%Margin vs markup — same sale, two numbers
Both compare profit to something. Margin compares it to the price; markup compares it to the cost. On the same $50-cost, $80-price sale they're 22 points apart.
Margin = profit ÷ price
$30 profit measured against the $80 price: a 37.5% margin. This is the number your P&L, your accountant and every benchmark table speak.
Markup = profit ÷ cost
The same $30 measured against the $50 cost: a 60% markup. Always the bigger number — useful for building a price up from a cost, and only for that.
Why the gap costs money
Told to "make 50%", many businesses add 50% to cost — a $75 price on a $50 cost. That's a 33% margin, not 50%. Quote the wrong number and you underprice every single sale.
What's a good profit margin?
It depends almost entirely on the industry — a healthy restaurant and a healthy software company live two worlds apart. As a broad rule of thumb: around 5% net is thin, around 10% is healthy, and 20%+ is strong.
your margin · —| Industry | Typical gross margin | Typical net margin | Net margin on a 0–25% scale |
|---|---|---|---|
| General retail | 25–50% | 2–5% | |
| Restaurants & food service | 60–70% | 3–6% | |
| Construction & trades | 15–25% | 2–5% | |
| E-commerce | 30–50% | 5–10% | |
| Marketing & creative agencies | 50–60% | 10–15% | |
| Software & SaaS | 70–85% | 10–25% | |
| Professional services & consulting | 60–80% | 15–25% |
Indicative industry-wide ranges for context, not targets — margins vary widely with size, region and business model. Compare yourself to your own last quarter first.
See the costs your margins are made of
For most service businesses the biggest cost is time. WebWork tracks the hours behind every project and client, prices them with real rates, and shows project costs as they happen — so margins stop being a surprise you discover at invoicing.
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From one-off math to live margins
A calculator shows the margin on the numbers you remember to type in. WebWork's project budget tracking watches the real ones — every tracked hour priced at its rate, spend against budget per project and client — so you see a margin eroding while there's still time to fix the price or the scope.
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This calculator is one small piece of WebWork — a full time tracking and workforce management platform.
Time & expense tracking
Track working hours and project expenses in one place — the two cost lines every margin depends on.
Track costsProject budget tracking
Set budgets per project, watch real-time spend against them, and catch overruns before they eat the margin.
Track budgetsBillable hours tracker
Separate billable from non-billable time and see which clients and projects actually earn their keep.
Track billablesPayroll hours tracker
Labor is usually the biggest cost of goods sold in services — get it measured automatically, payroll-ready.
Simplify payrollFrequently asked questions
Subtract costs from revenue to get profit, divide the profit by revenue, and multiply by 100. Selling for $80 what costs you $50: (80 − 50) ÷ 80 × 100 = 37.5%. Always divide by revenue — dividing by cost gives you markup, a different number.
As a broad rule of thumb for net margin: around 5% is thin, around 10% is healthy, and 20% or more is strong. But industry matters more than the rule — restaurants routinely live at 3–6% net while software companies can run above 20%, and both can be perfectly healthy businesses.
Both start from the same profit, but margin divides it by the selling price while markup divides it by the cost. A $50 cost sold at $80 is a 37.5% margin and a 60% markup — the markup number is always bigger. Mixing them up leads straight to underpricing.
Use gross margin to judge a product or service itself, operating margin to judge the business model, and net margin to judge the whole company after interest and taxes. For pricing decisions, gross margin is usually the right lens; for "is this business worth running", net margin answers.
Divide the cost by (1 − target margin). For a 40% margin on a $50 cost: 50 ÷ 0.60 = $83.33. Don't multiply the cost by 1.40 — $70 only delivers a 28.6% margin. The "Set a price" mode of this calculator does the division for you.
Yes — whenever costs exceed revenue. A −10% net margin means you lose 10 cents on every dollar of sales. Negative gross margin is the most alarming version: the product itself loses money before the business around it even starts, so more sales only deepen the hole.
Gross margin = (Revenue − Cost of goods sold) ÷ Revenue × 100. Only direct costs count — materials, direct labor, fulfillment — not rent or salaries. $120,000 revenue with $54,000 COGS leaves $66,000 gross profit: a 55% gross margin. The "Business margins" mode above calculates it alongside operating and net.
Yes — if you work in the business, your time is a real cost, whether or not you pay yourself formally. Skipping it makes the margin look healthy while the business quietly underpays its most senior employee. Price it at what you'd pay someone else to do the same work.
Three levers: raise prices (a small increase lands entirely in profit), cut cost of goods sold (better rates, less waste), or reduce the quiet leaks — unbilled hours, scope creep and rework, which in service businesses are usually the largest untracked cost. Measuring where hours actually go is the first step.
Both exist — you just have to name them. Gross and operating margins are pre-tax by definition; net margin is after everything, including interest and taxes. When someone says "profit margin" without qualifying it, they usually mean net margin.