Net Profit Margin Calculator
A $120 sale with $66 of cost of goods sold and $42 of operating expenses keeps $12 of net profit, a net profit margin of 10%. Put your own figures into the net profit margin calculator.
Net profit margin
- Gross margin Gross profit / revenue = $54.00 / $120.00.
- 45%
- Gross profit $120.00 revenue less $66.00 of cost.
- $54.00
- Net margin Net profit / revenue = $12.00 / $120.00, after $42.00 of operating expenses.
- 10%
- Net profit
- $12.00
- Equivalent markup on cost A 45% margin and a 81.8% markup are the same price. They describe the same transaction over different denominators, and they are only equal at zero.
- 81.82%
- Total for 500 units
- $60,000.00 revenue, $27,000.00 gross profit, $6,000.00 net profit
- Price for a 50% margin cost / (1 - margin). Marking the cost up by 50% instead gives $99.00, which is only a 33.3% margin, $33.00 per unit short.
- $132.00
- A 1% price rise vs a 1% cost cut The price rise is worth more, because revenue is the larger number. This is why pricing beats procurement at most margins.
- $1.20 vs $0.66 of extra profit
| Margin | Markup | Price on a $66.00 cost |
|---|---|---|
| 10% | 11.1% | $73.33 |
| 20% | 25% | $82.50 |
| 25% | 33.3% | $88.00 |
| 33.3% | 49.9% | $98.95 |
| 40% | 66.7% | $110.00 |
| 50% | 100% | $132.00 |
| 60% | 150% | $165.00 |
| 75% | 300% | $264.00 |
- Margin divides profit by revenue; markup divides it by cost. A 50% margin is a 100% markup. Confusing them systematically underprices, because markup is always the larger number.
- Gross margin excludes operating expenses and net margin includes them. Neither accounts for tax or interest; that would be net income rather than net profit.
How the Profit Margin Calculator works
Net profit margin is the share of revenue left after every cost of running the business. The net profit margin formula is net profit / revenue, where net profit is revenue less cost of goods sold, less operating expenses. As a decimal it is the net profit margin ratio; times 100 it is the percentage.
In the example, $120 of revenue less $66 of cost of goods sold leaves $54 of gross profit, a 45% gross margin. Operating expenses of $42 take that down to $12 of net profit, and $12 / $120 is a 10% net margin. Across 500 sales that is $60,000 of revenue and $6,000 of net profit.
What counts as an expense decides the answer. On an income statement, net profit margin is usually net income over revenue, after interest and income tax as well as operating costs. This calculator subtracts whatever you put in the operating expenses field, so include interest and tax there if you want the bottom-line figure. Leave them out and the result is closer to an operating margin. Say which one you mean when you quote it.
The gap between the two margins is where most businesses are won or lost. Here 45% of revenue survives the cost of goods, and 35 points of it go on operating expenses. A small change in those expenses moves net profit a long way: cutting them by $1.20 per sale, 1% of revenue, adds 10% to net profit. The same lever works on price. A 1% price rise adds $1.20 per sale against $0.66 for a 1% cut in the cost of goods, because revenue is the bigger number.
Net margins differ widely by industry, so compare against businesses like yours. A grocer can run on a net margin of a few percent and turn its stock quickly. A software company with a far higher gross margin can still post a loss if its operating costs outgrow it.
Profit Margin Calculator FAQ
What is the net profit margin formula?
Net profit margin = net profit / revenue. Net profit is revenue less cost of goods sold and all other expenses. $12 of net profit on $120 of revenue is a 10% net profit margin, or a net profit margin ratio of 0.10.
What is the difference between gross margin and net profit margin?
Gross margin subtracts only the cost of goods sold. Net profit margin also subtracts operating expenses, and on an income statement interest and tax as well. In the example the gross margin is 45% and the net profit margin is 10%.
Should interest and taxes be included?
For net profit margin as an income statement reports it, yes: net income after interest and income tax, over revenue. Add them to the operating expenses field. Without them the figure is closer to an operating margin.
Can net profit margin be negative?
Yes. When expenses exceed revenue, net profit is a loss and the margin is below zero. A business can have a healthy gross margin and a negative net margin if its operating costs are larger than its gross profit.