How to Use Our Margin Calculator
To find your margin, you only need two key pieces of information about the item you are selling.
Cost: Enter the “Cost of Goods Sold” (COGS). This is the total direct cost to produce or acquire one unit. For a physical product, this includes materials and direct labor. If you resell items, this is your wholesale purchase price. This does not include indirect costs like marketing, rent, or salaries.
Revenue: Enter the final sale price you charge your customer for the product or service.
Understanding Your Results
The calculator provides two crucial figures that tell the story of your profitability: Gross Profit and Gross Margin.
Example Calculation:
Imagine you run an online store and sell a t-shirt.
Using the formulas:
This means that for every dollar in sales for this t-shirt, 68 cents is gross profit.
Frequently Asked Questions
What’s the difference between Margin and Markup?
This is the most common point of confusion for business owners. Both measure profitability, but they are calculated differently and tell you different things.
As you can see, the markup percentage will always be higher than the margin percentage for a profitable item.
What is a “good” profit margin?
A “good” profit margin varies dramatically by industry, business model, and location. A grocery store might operate on a thin 2-5% margin and rely on high sales volume, while a software company could have an 80% margin.
Here are some very general gross margin benchmarks by industry (as of 2025):
The most important thing is to track your own margin over time and compare it to your direct competitors.
What is the difference between Gross Profit and Net Profit?
Gross Profit is your profit after subtracting only the direct costs of producing and selling your product (COGS). Our calculator calculates this.
Net Profit is your “bottom line” profit after subtracting all of your business expenses, including indirect costs like rent, marketing, salaries, utilities, and taxes.
Concrete Example: Your business has $100,000 in revenue and $40,000 in COGS. Your Gross Profit is $60,000. But if you also have $35,000 in rent, salaries, and marketing, your Net Profit is only $25,000.
How can I improve my profit margin?
There are two primary ways to increase your margin:
Increase Prices: The simplest way to boost margin. Even a small price increase can have a significant impact. You must be careful not to price yourself out of the market, so research competitors and understand your value proposition first.
Decrease Cost of Goods Sold (COGS): Negotiate better prices with your suppliers, buy in larger quantities to get bulk discounts, or find ways to make your production process more efficient to lower material or labor costs.
What costs should I include in “Cost of Goods Sold” (COGS)?
This depends on your business type:
For Retail/E-commerce: The wholesale cost of the product, shipping and freight charges to receive it, and customs duties.
For Manufacturing: Raw material costs, direct labor costs (wages for production-line workers), and factory overhead directly related to production.
For Service Businesses: Often, the direct cost of labor for the employees providing the service and any software subscription costs essential to delivering that service.
How does inflation affect my profit margin?
Inflation directly attacks your profit margin by increasing your Cost of Goods Sold (COGS). If the cost of your raw materials, inventory, and shipping goes up but your sale price stays the same, your margin shrinks. As of July 2025, with recent inflationary pressures, it is critical for business owners to review their margins regularly and adjust prices strategically to protect their profitability.
Take the Next Step in Your Business Strategy
Knowing your margin is the first step. Now, use that knowledge to plan for overall profitability.
