Calculator
Profit Margin Calculator
Calculate profit margin percentage from revenue and cost, with profit dollars shown alongside the result. Use it when the main question is what percentage of each sales dollar remains after the costs you enter.
Result
- Profit margin
- 35%
- Profit
- $3,500.00
Profit as a percentage of revenue.
How profit margin calculation works
This profit margin calculator subtracts cost from revenue to calculate profit, then divides profit by revenue to calculate the margin percentage.
Profit margin answers a percentage question: how much of each revenue dollar remains after the costs you entered. If you only need the dollar amount, use gross profit instead.
The result is only as complete as the cost input. Direct product cost produces a gross-margin style result, while including labor, fees, shipping, commissions, and overhead produces a broader project margin.
Useful next steps
- Use the gross profit calculator when the dollar amount matters more than the percentage.
- Use the markup calculator when you want profit measured against cost instead of revenue.
- Use the break-even calculator when fixed costs and sales volume matter more than margin alone.
- Use the commission calculator if sales payouts should be modeled as part of cost.
Profit margin formula
profit = revenue - cost; marginPercent = (profit / revenue) * 100Profit margin is revenue-based. Use markup when you want to divide profit by cost instead.
- revenue is total sales or income for the item measured.
- cost is the cost basis included in the margin calculation.
- profit is revenue minus cost.
What the Numbers Mean
- Revenue
- Total sales or income for the item, order, job, or period being measured.
- Cost
- The cost basis included in the calculation. Use direct costs for gross-style margin or broader costs for project margin.
- Profit
- Revenue minus cost. This is the dollar amount kept before any costs not included in the input.
- Profit margin
- Profit as a percentage of revenue. This is not the same as markup.
Assumptions
- Revenue must be greater than zero because margin divides by revenue.
- The calculator uses the cost value entered and does not classify costs automatically.
- Taxes, overhead, shipping, commissions, and fees are excluded unless included in cost.
- Margin can be negative when cost is greater than revenue.
- Use break-even when fixed costs and sales volume are the main decision factors.
Worked Examples
Product batch
- Input
- $12,000 revenue and $7,800 cost
- Output
- $4,200 profit and 35% margin
Profit is 4,200, and 4,200 divided by 12,000 equals 35%.
Service project
- Input
- $8,500 revenue and $6,375 cost
- Output
- $2,125 profit and 25% margin
The project keeps 25 cents of each revenue dollar after the included costs.
Loss scenario
- Input
- $5,000 revenue and $5,600 cost
- Output
- -$600 profit and -12% margin
When cost exceeds revenue, both profit and margin are negative.
Common Profit Margin Examples
Use these revenue-and-cost examples as quick references before entering your own numbers.
| Example | Cost | Profit | Profit margin |
|---|---|---|---|
| $5,000 revenue | $3,500 | $1,500 | 30% |
| $10,000 revenue | $6,500 | $3,500 | 35% |
| $12,000 revenue | $7,800 | $4,200 | 35% |
| $20,000 revenue | $15,000 | $5,000 | 25% |
| $50,000 revenue | $37,500 | $12,500 | 25% |
Margin depends on which costs are included. Direct costs, fees, commissions, and overhead can produce different margins.
When Profit Margin Changes
Margin moves when revenue, price, or cost changes. The same business can look different after fees, discounts, or cost increases.
Base case
$10,000 revenue and $6,500 cost
35% margin
Profit is $3,500, which is 35% of revenue.
Cost rises
$10,000 revenue and $7,500 cost
25% margin
Higher cost reduces profit to $2,500 and lowers margin.
Price falls
$9,000 revenue and $6,500 cost
27.78% margin
Discounting revenue while cost stays fixed compresses margin.
Common Profit Margin Mistakes
Margin can answer a useful question, but only when the cost basis is consistent.
Changing which costs are included
A margin based only on product cost is not comparable to a margin that includes labor, fees, shipping, commissions, and overhead.
Confusing margin with markup
Margin divides profit by revenue. Markup divides profit by cost. The same sale produces different percentages.
Ignoring fixed costs
A healthy unit margin can still miss the business target if fixed costs require more sales volume. Use break-even when fixed costs matter.
Related Guides for Margin Decisions
Use these pages when the decision depends on markup, gross profit, or break-even volume.
Frequently Asked Questions
Is profit margin the same as markup?
No. Margin divides profit by revenue. Markup divides profit by cost.
How do I calculate profit margin from revenue and cost?
Subtract cost from revenue to get profit, then divide profit by revenue and multiply by 100.
Can margin be negative?
Yes. If cost exceeds revenue, profit is negative and margin is negative.
What costs should I include?
Include the costs relevant to the margin you are measuring, such as direct costs for gross margin or broader costs for operating margin.
What is a good profit margin?
A good margin depends on industry, risk, sales cycle, and cost structure. Compare against your own targets and comparable businesses rather than using one universal threshold.
Why can margin be lower than markup?
Margin divides profit by revenue, while markup divides profit by cost. Because the denominator is different, the percentages are not interchangeable.
When should this not be used?
Do not use a simple margin calculation when cash timing, fixed costs, inventory write-downs, or contribution margin are the dominant decision factors.
Related Calculators
Continue with the closest next calculation instead of starting from a generic directory.
Disclaimer
This calculator is a simplified margin tool and does not replace accounting advice or full financial statement analysis.