How to Calculate Profit Margin

Profit margin shows what percentage of revenue remains as profit after the relevant cost has been deducted. It is a useful calculation for pricing, product analysis, sales, and basic business planning.

Profit Margin Formula

First find the profit by subtracting cost from revenue. Then divide profit by revenue and multiply by 100.

Profit = Revenue − Cost

Profit Margin = (Profit ÷ Revenue) × 100

Simple Example

If revenue is 1,000 units and the associated cost is 700 units, the profit is 300 units. Dividing 300 by 1,000 and multiplying by 100 gives a 30% profit margin.

Profit Margin and Markup Are Different

Margin is based on revenue, while markup is based on cost. For example, if something costs 70 units and sells for 100 units, the profit is 30 units. The margin is 30%, whereas the markup is about 42.86%.

Why Profit Margin Is Useful

Profit margin helps put profit into context by relating it to revenue. Businesses may use it when reviewing prices, comparing products, or tracking changes over time. Other expenses, taxes, financing costs, and accounting methods may also need to be considered for a complete financial picture.

Calculate Profit Margin Online

An online profit margin calculator can save time when checking several revenue and cost combinations. Enter the figures carefully and make sure the revenue and cost values refer to the same period or transaction.