Profit Margin Calculator
Gross, operating and net margin from one set of figures, so the gap between a product that works and a business that does not is visible.
Revenue $500,000.00
Cost of goods sold $275,000.00
Operating costs $180,000.00
Interest and tax $30,000.00
Gross profit $225,000.00 (45%)
Operating profit $45,000.00 (9%)
Net profit $15,000.00 (3%)
Of every $100.00 of revenue, $3.00 is net profit.
Output is valid and updates as you type.
Fix the highlighted fields to update the output.
Three margins, one set of figures. Gross asks whether the thing you sell is worth making. Operating asks whether the business around it pays for itself. Net asks whether anything is left after interest and tax.
They are worth seeing together because the usual problem is not visible in any one of them. A 45 percent gross margin with a 3 percent net margin is a business with a good product and an expensive middle.
How to use
- Put in the revenue: everything you invoiced.
- Put in the cost of goods sold: what the things you sold cost to make or buy.
- Put in operating costs: salaries, rent, software, marketing.
- Put in interest and tax.
Each margin is the profit at that line as a share of revenue, which is what makes them comparable across years and against other companies.
Example
Revenue $500,000.00
Cost of goods sold $275,000.00
Operating costs $180,000.00
Interest and tax $30,000.00
Gross profit $225,000.00 (45%)
Operating profit $45,000.00 (9%)
Net profit $15,000.00 (3%)
Of every $100.00 of revenue, $3.00 is net profit.Read it as a set. Forty-five cents of every dollar survives the cost of making the product, nine cents survives the cost of running the company, three cents survives the bank and the tax office. Improving the 45 is a pricing or sourcing job. Improving the gap between 45 and 9 is a cost-of-business job. They are different projects with different people.
Pitfalls
Cost of goods sold is not “all the costs”. It is the cost that scales with what you sold: materials, manufacturing, hosting per customer, a contractor billed to a project. Your own salary while you do the admin is an operating cost.
A service business still has a gross margin. For an agency it is the cost of the delivery hours; for software it is hosting and support. If everything lands in operating costs, the gross margin is meaningless and so is the comparison.
Operating margin is the one to watch over time. It is the number a buyer or a lender asks about, because it is the closest thing to “does this business work” without the distortions of debt and tax.
Margins are shares of revenue, not of each other. Gross 45 and operating 9 does not mean operating is 20 percent of gross. Both divide by revenue.
One month is noise. Use a quarter or a year. A single month with an annual software renewal in it will show an operating margin that means nothing.
Compatibility
Arithmetic in the browser: nothing is uploaded and nothing is stored. The share link carries the figures, which is useful for sending a scenario to a co-founder or an accountant.
The figures follow the ordinary profit and loss order, so they line up with what your accounting software calls gross profit, operating profit and net profit. It does not know about depreciation or one-off items: put those in operating costs or in interest and tax, and be consistent between periods.