# Profit Margin Calculator

- **URL:** https://codeasystem.com/calculators/business/profit-margin-calculator/
- **Category:** business
- **Description:** Turn revenue and cost into gross profit, gross margin percentage and markup on cost; the three numbers behind every pricing conversation.
- **Primary output:** Gross margin: 40%

## Inputs
- Revenue (name: `revenue`, type: number, prefix: $, example: 120000)
- Cost of goods sold (name: `cost`, type: number, prefix: $, example: 72000)

## Outputs
- Gross margin: 40%
- Gross profit: $48,000.00
- Markup on cost: 66.67%
- Revenue: $120,000.00

## Formula / methodology
```
Gross profit = Revenue − Cost
Gross margin = Gross profit / Revenue
Markup = Gross profit / Cost
```

Gross profit is what remains of revenue after paying direct costs of goods or delivery. Dividing it by revenue gives margin; profit as a share of every dollar earned; while dividing by cost gives markup, the percentage added on top of what you paid. Both describe the same dollars from different bases.

## Assumptions & limitations
- Only direct costs are included; overhead and taxes come out below the gross line.
- Revenue and cost cover the same period.
- Negative results are reported honestly as losses.

## How to use
1. **Enter revenue**; Use net revenue from the same period as your costs; typically monthly or annually.
2. **Enter cost of goods sold**; Include materials, manufacturing, shipping and delivery costs; not rent or marketing.
3. **Compare margin and markup**; Both rows appear side by side so quotes and financial statements stop contradicting each other.

## Example
On $120,000 of revenue with $72,000 of cost of goods sold, gross profit is $48,000; a 40% margin, equivalent to a 66.67% markup on cost.

Result for these inputs:

```
Gross margin: 40%
```

## About this calculator
### Margin vs markup: the classic mix-up

A 50% markup produces only a 33.3% margin, and the gap widens at higher percentages. Businesses that quote internally in markup but negotiate against competitors quoting margins routinely underprice by double digits without noticing. Anchoring both numbers together prevents expensive vocabulary errors.

### What a good margin looks like

- Grocery and retail often run 20–35% gross margins.
- Professional services commonly reach 50–70%.
- Software businesses frequently exceed 70–80%.

Benchmarks vary enormously by industry, so compare yourself to peers rather than absolutes; and remember gross margin says nothing about whether overhead eats the rest.

## FAQs
### Should operating expenses be included?

No; this computes gross margin. Subtracting overhead too would give operating margin, a different metric computed further down the income statement.

### Why is my margin different from my competitor’s quote?

They may be quoting markup instead of margin. Convert using the markup↔margin calculator before comparing offers.

### What if cost exceeds revenue?

The calculator reports the negative margin honestly; you lose money on every sale before overhead even enters the picture.

## Related calculators
- [Markup ↔ Margin Calculator](https://codeasystem.com/calculators/business/markup-margin-calculator/)
- [Break-Even Calculator](https://codeasystem.com/calculators/business/break-even-calculator/)
- [CAC Calculator](https://codeasystem.com/calculators/business/cac-calculator/)
- [ROI Calculator](https://codeasystem.com/calculators/finance/roi-calculator/)

---
Last updated: 2026-08-23 · Version: 1.0.0 · [HTML version](https://codeasystem.com/calculators/business/profit-margin-calculator/)