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How to Use Our Profit Margin Calculator

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How to Use Our Profit Margin Calculator

Profit margin is the clearest measure of business profitability. Our Profit Margin Calculator computes gross, operating, and net margins so you can assess your business health at a glance.

What to Enter

  • Revenue -- Total sales income before any expenses are deducted.
  • Cost of Goods Sold (COGS) -- Direct costs to produce or acquire what you sell: materials, labor, manufacturing, or wholesale purchase price.
  • Operating Expenses (optional) -- Overhead costs like rent, salaries, marketing, and utilities.

Understanding the Three Margins

Gross Profit Margin = (Revenue - COGS) / Revenue x 100

This tells you how much of each dollar of revenue remains after covering direct production costs. A 60% gross margin means you keep $0.60 of every dollar sold before overhead.

Operating Margin = (Revenue - COGS - Operating Expenses) / Revenue x 100

This shows profitability after all regular business costs. A healthy operating margin varies by industry -- 15-20% is strong for most businesses.

Net Profit Margin = Final profit after all expenses (including taxes and interest) / Revenue x 100

This is the bottom line -- what you actually keep.

Using Margins for Decisions

Pricing: If your gross margin is below your industry average, you may need to raise prices or reduce production costs.

Benchmarking: Compare your margins to industry averages. SaaS companies typically achieve 70-80% gross margins. Restaurants average 3-9% net margins. Retail ranges from 2-5%.

Trend tracking: Calculate margins monthly or quarterly. A declining margin, even with growing revenue, signals a problem.

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