How to Calculate Profit Margin (With Examples)
Profit margin shows what percentage of revenue remains after costs. To calculate gross profit margin, subtract cost of goods sold from revenue, then divide the result by revenue and multiply by 100.
The basic formula
Gross profit margin = (Revenue − Cost of goods sold) ÷ Revenue × 100
A simple example
For example, if a business earns $10,000 in sales and the goods sold cost $6,000, gross profit is $4,000. Divide $4,000 by $10,000 and multiply by 100: the gross margin is 40%.
Practical tips
Use the result to compare products or track changes over time. A higher margin is not automatically better if it reduces sales volume, and gross margin does not include every operating expense.
Put it into practice
Use the free SoloBizKit calculators to test your assumptions and compare different scenarios. Keep your inputs and assumptions up to date as your business changes.
This guide is for general educational purposes only and is not financial, legal, accounting or tax advice. Rules and circumstances vary by location.