David is a Chartered Financial Analyst with over 15 years of experience in corporate finance and financial analysis, specializing in profitability metrics and business valuation.
This 4-in-1 Profit Margin calculator helps you find the missing piece of your profitability analysis. Enter any three values—Revenue, Total Costs, Net Profit, or Profit Margin—and we will solve for the fourth.
Profit Margin Calculator
Profit Margin Formulas
M = ( (R – C) / R ) * 100
or M = (P / R) * 100
Solve for Revenue (R):
R = C / (1 – (M / 100))
or R = P + C
Solve for Costs (C):
C = R – P
Solve for Profit (P):
P = R – C
or P = R * (M / 100)
Formula Variables
- (R) Revenue: The total amount of income generated from sales of goods or services. Also known as “top-line” sales.
- (C) Total Costs: The sum of all expenses, including fixed costs (rent, salaries) and variable costs (materials, COGS).
- (P) Net Profit: The “bottom-line” profit after all costs have been subtracted from revenue (P = R – C).
- (M) Profit Margin: The percentage of revenue that remains as profit, calculated as (P / R) * 100.
Related Calculators
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What is Profit Margin?
Profit Margin is one of the most important measures of a business’s financial health. It’s not just about how much money you *make* (Revenue), but how much money you *keep* (Profit). It is expressed as a percentage that shows how many cents of profit the business generates for each dollar of sales.
For example, a 20% profit margin means that for every $1 of revenue, the business keeps $0.20 as profit after paying all expenses. The other $0.80 went to cover costs.
Lenders and investors look closely at profit margin to gauge a company’s efficiency, pricing power, and cost control. A business applying for a loan will be in a much stronger position if it can show a healthy and stable profit margin, as this indicates a clear ability to generate the cash flow needed to make loan payments.
How to Calculate Profit Margin (Example)
-
Identify Revenue and Costs
A coffee shop has:
• Total Revenue (R): $50,000 for the month
• Total Costs (C): $40,000 (beans, milk, rent, labor, etc.)
We need to find the Net Profit (P) and Profit Margin (M). -
Calculate Net Profit (P)
First, find the profit by subtracting costs from revenue:
P = R – C
P = $50,000 – $40,000 = $10,000 -
Choose the Margin Formula
Now, use the formula to find the margin percentage:
M = (P / R) * 100 -
Calculate the Profit Margin
Divide the profit by the revenue and multiply by 100:
M = ($10,000 / $50,000) * 100
M = 0.20 * 100 = 20%
The coffee shop has a 20% profit margin.
Frequently Asked Questions (FAQ)
What is a “good” profit margin?
This varies dramatically by industry. A grocery store might have a 2-3% margin, while a software company might have an 80% margin. The key is to compare your margin to your industry average and to track whether your own margin is improving over time.
What is the difference between Net Profit Margin and Gross Profit Margin?
Gross Profit Margin only subtracts the Cost of Goods Sold (COGS) from revenue. Net Profit Margin (which this calculator finds) subtracts *all* expenses, including operating costs, interest, and taxes. Net margin is the true “bottom line” measure of profitability.
How can I use this calculator to set my Revenue target?
If you know your Total Costs (C) and your target Profit Margin (M), you can solve for Revenue (R). This tells you the exact sales goal you must hit to achieve your desired margin. (e.g., C=$80k, M=20% -> R = $80,000 / (1 – 0.20) = $100,000).
What does a negative profit margin mean?
A negative profit margin means your Total Costs (C) are higher than your Revenue (R). This is known as a net loss. The business is spending more money than it is making.