Use this gross margin calculator to easily calculate your profit margin (operating margin), your gross profit or the revenue required to achieve a given margin. Enter the cost and either the total revenue, the gross profit or the gross margin percentage to calculate the remaining two.
How to use the Margin Calculator?
This versatile profit margin calculator will help you calculate:
- profit, gross profit margin and markup given cost and gross revenue.
- revenue, gross profit margin and markup given cost and gross profit.
- revenue, profit and markup given the cost and the profit margin.
Simply enter the cost and the other business metric depending on the desired output and press "Calculate". You can copy/paste the results easily using the clipboard icon next to each value.
What is gross profit margin?
The gross profit margin (a.k.a. operating margin, operating profit margin, operating income margin, EBIT margin) is a key business performance metric indicating the profitability of a company, product or investment project. It is great for internal comparisons of one period versus another, identifying trends in profitability, as well as comparisons to businesses of similar industries, niches, sizes and age.
The profit margin is so key as it communicates the percentage of total revenue converted to operating profits (before tax profits). It is often used by investors as an efficiency ratio or percentage metric as it is a proxy for potential dividend payouts, reinvestment potential and overall solvency. The result is a measurement of what proportion of a company's revenue is left over, before taxes and other indirect costs (such as bonuses, interest rate payments), after paying for variable production costs such as wages, source materials, contractors, etc. A higher operating margin means that the company has less financial risk as it is able to face fixed cost expenses with greater ease.
Gross Margin Formula
The formula for gross margin is:
Margin = Operating income / Revenue
Operating income is also called "operating profit" whereas revenue is total value of sales. In many cases the total costs and revenue are known and what is sought is the operating income and margin. In such circumstances the following formula is more suitable, which is why it is used in our gross margin calculator:
Margin = (Revenue - Cost) / Revenue
Both input values are in the relevant currency while the resulting profit margin is a percentage arrived at after multiplying the result by 100. Note that our profit margin calculator does not do any currency conversions, so make sure you input the values in the same currency.
How to calculate your profit margin?
Knowing the formula above, you should start with estimating the cost of production, which includes all variable costs of producing the goods or services the business sells. If calculating for a past period, you would already know the gross revenue that was made by selling the goods or services. Simply plug in the numbers in formula #2 above and you will get the result. For example, if the costs are $100,000 and the revenue is $120,000 the equation becomes: Margin = (120,000 - 100,000) / 120,000 = 20,000 / 120,000 = 1/6 which is the margin ratio telling you that for every 6 dollars in sales the business pockets 1 dollar in profit. To convert to percentage, multiply by 100: 1/6 * 100 = 16.67% operating profit margin.
If you know only the cost and the profit, simply add the two together to get the revenue, then substitute in equation #2 again. If what you want to calculate is the profit and/or revenue required to achieve a given margin, then simply input the cost and the margin percentage in our calculator and it will handle the rest.
What is a good gross profit margin?
While a profit margin calculation is useful in itself, some might need more context to interpret the numbers. Generally, a good profit margin should allow the business to cover its variable and fixed expenses and turn a profit with which to compensate the capital owners for their risk (time preference). This is individual to every business or investment project and what is a "good profit margin" depends very much on the options it is compared with, as well as the estimated risk.
Cite this calculator & page
If you'd like to cite this online calculator resource and information as provided on the page, you can use the following citation:
Georgiev G.Z., "Margin Calculator", [online] Available at: https://www.gigacalculator.com/calculators/profit-margin-calculator.php URL [Accessed Date: 26 Jan, 2021].