What Is Profit Margin?
Profit margin is a financial measurement that shows how much of a business's revenue remains as profit after costs are deducted. It is usually expressed as a percentage.
A higher profit margin generally means that a business keeps more profit from each dollar, euro, pound, or other unit of revenue it earns. Business owners can use the metric to evaluate pricing, costs, product performance, and overall profitability.
Profit Margin Formula
The basic formula is:
For example, if a business generates $10,000 in revenue and has $6,000 in total costs, its profit is $4,000. The profit margin is therefore 40%.
Profit Margin Calculation Example
Suppose a small business sells 100 units of a product for $100 per unit. The cost of producing or purchasing each unit is $60.
Quantity: 100 units
Selling price: $100 per unit
Cost: $60 per unit
Total revenue: $10,000
Total cost: $6,000
Total profit: $4,000
Profit margin: 40%
Markup: 66.67%
The calculator above performs these calculations automatically and updates the results whenever the inputs change.
Profit Margin vs Markup
Profit margin and markup are related, but they are not the same measurement. Understanding the difference is important when setting prices and evaluating business profitability.
Profit Margin
Profit margin measures profit relative to revenue. It answers the question: "How much of my sales revenue is profit?"
Markup
Markup measures profit relative to cost. It answers the question: "How much did I increase the price above my cost?"
For example, a product that costs $60 and sells for $100 generates $40 in profit. The markup is 66.67%, while the profit margin is 40%.
How to Use the Profit Margin Calculator
You can calculate your business profitability in a few simple steps:
- Select the currency you want to display.
- Enter the number of units sold.
- Enter the selling price for one unit.
- Enter the cost of producing or purchasing one unit.
- Review your revenue, cost, profit, margin, markup, and profit per unit.
The calculator runs directly in your browser, so your numbers do not need to be submitted to an external calculation service.
Why Profit Margin Matters for Small Businesses
Revenue alone does not tell you whether a business is profitable. Two businesses can generate similar sales while producing very different levels of profit because their costs and pricing structures differ.
Monitoring profit margin can help business owners identify products with stronger profitability, review pricing decisions, understand cost pressures, and compare performance over time.
For small businesses and MSMEs, a simple margin calculation can be a useful starting point for making better pricing and cost management decisions.
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Frequently Asked Questions
What is profit margin?
Profit margin is the percentage of revenue that remains as profit after costs are deducted. It is calculated by dividing profit by revenue and multiplying by 100.
How do you calculate profit margin?
Use the formula: Profit Margin = Profit ÷ Revenue × 100. First calculate profit by subtracting total cost from revenue.
What is the difference between profit margin and markup?
Profit margin measures profit relative to revenue, while markup measures profit relative to cost.
Can I use this calculator for an online business?
Yes. It can be used by online stores, retailers, freelancers, entrepreneurs, service businesses, and other small businesses.
Does the currency selector convert exchange rates?
No. The selector changes the currency format displayed by the calculator. It does not perform live currency conversion.