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Profit Margin Calculator

A profit margin calculator can help you determine the exact profit margin, calculate costs of products and services, evaluate if a project is profitable, measure revenue, and other values.

With the right calculations, you can create an accurate pricing strategy for your business, increase income, save money, and grow your company.

How to Calculate Profit Margin?

Calculating profit margin will make it easy to determine the selling price of your product. You'll ensure your product's selling price is attractive to clients, reasonable, and brings profit to your business.

To calculate profit margin you can use Excel. This method, however, requires you to know how to apply the right formulas. But with an automatic online calculator, you'll ensure calculations are precise.

To determine profit margin, you'll need two values:

  • Cost of goods sold (COGS) — costs directly related to creating a product
  • Revenue - how much money you get from selling your product. It refers to business primary operations. It doesn't include other expenses, for example, costs of renting an office and hiring employees.

Just enter the numbers in the profit margin calculator, and the app will do all the work for you.

Profit Margin Formula

The profit margin formula is a simple method of calculation and it goes as follows:

Gross margin = (revenue - COGS) ÷ revenue

For example, if you sell a T-shirt for $100, it costs you $55 to make and ship it to your customer. Your gross profit is 45 because: $100 (net sales) - $45 (COGS) = $45 (gross profit).

Gross profit margin is calculated in percentage, so you need to divide the gross profit by net sales: $45 ÷ $100 = 45%.

Profit is the actual cost you make from selling a product.

The online profit margin calculator by TimeCamp uses this formula to calculate the exact profit margin.

Definition and Terminology

There are many financial terms that are important in sales and when running a business. Here are the most important you may find helpful in using our margin calculator.

Gross Profit Margin

While the two terms — gross profit and gross margin — are used interchangeably, there is one big difference between them. Gross profit is expressed in percentage while gross margin in currency.

Also, the gross profit margin is calculated by considering only net sales, or your sales price minus COGS. It doesn't concern other costs of your business like, for example, selling expenses, general admin expenses, costs of having an office and employees.

To make it easier, you can think about it as of gross margin percentage.

Net Profit Margin

Net profit margin (or net margin) is usually expressed as a percentage but can also be shown in a decimal form. It's the profit after deducting all the expenses and costs (e.g., taxes, marketing costs, admin expenses, office rental).

Net profit margin = Revenue - costs

Net profit margin helps to assess if operating costs are covered and the product you're selling is profitable and brings value to the company.

Operating Profit Margin

Operating profit margin formula is simple: operating profit margin = operating profit ÷ total revenue

To calculate operating profit, you need to subtract from the revenue all operating earnings like COGS, costs of running a business, taxes, and interests.

Operating profit margin is also expressed in percentage.

Operating profit margin indicates how well the company is managed because it includes variable costs that may change over time and in different circumstances. It's not always easy to manage these expenses.

FAQ

+ What is a good profit margin?

Profit margin is important to know if you're selling your products at the right price, if your business is profitable and whether you can invest in its growth. It can also help to find out how you're performing against competitors

+ What to do with high profit?

If your profit margin or net profit margin is high, it means you're selling the product at the right price. You can invest the money in a company or product development to grow your business.

Additionally, you can use a margin profit calculator to assess if your profit margin isn't too high in comparison with competitors and if it doesn't scare off customers.

+ Do I have to pay to use the calculator?

The profit margin calculator by TimeCamp is a free tool. You don't have to pay or sign up to use it.

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