What is a good profit margin for a business?

A good profit margin depends entirely on your industry, business model, and stage of growth. There is no universal benchmark — a 5% margin can be excellent in grocery retail but terrible in software. The key is comparing your margin to industry peers and tracking it consistently over time. Software/SaaS: 60-80% gross margin is typical and expected by investors Retail: 2-10% net margin is standard; Amazon operates at 2-3% Restaurants: 3-9% net margin; food cost should be 28-35% of revenue Manufacturing: 5-20% depending on product complexity and automation

What is the difference between gross margin and net margin?

Gross margin only subtracts the direct cost of producing your product or service from revenue. Net margin subtracts ALL expenses including operating costs, salaries, rent, taxes, and interest. Gross margin tells you about production efficiency; net margin tells you about overall business health. Gross Margin = (Revenue - COGS) / Revenue x 100 Net Margin = (Revenue - All Expenses) / Revenue x 100 A business can have a high gross margin but low net margin if overhead is too high Investors focus on gross margin for early-stage and net margin for mature companies

How do I use profit margin to set prices?

Start with your target margin — what percentage do you need to cover overhead and make a profit? Then work backwards from your cost. If your cost is 600 and you want a 40% margin, your price must be 600 / (1 - 0.40) = 1000. This is called cost-plus pricing with a margin target. Price = Cost / (1 - Target Margin %) Always validate your target price against what the market will actually pay Factor in all costs including shipping, returns, and support Review pricing quarterly as costs change

Why is my profit margin decreasing even though revenue is growing?

Revenue growth without margin improvement is a red flag. It means your costs are growing faster than your revenue. Common culprits include rising raw material costs, increased competition forcing price cuts, hiring ahead of revenue, or scaling inefficiencies. Check your Cost of Goods Sold as a % of revenue — if rising, production is less efficient Review customer acquisition cost — if CAC is rising, marketing is less efficient Analyse whether discounting is eroding margin — a 5% discount on 20% margin cuts profit by 25% Consider whether you are growing into lower-margin product lines

What is the difference between markup and margin?

Markup and margin are both percentages but calculated differently. Markup is the percentage added ON TOP of cost. Margin is the percentage of the selling price that is profit. Confusing them is one of the most common and costly pricing mistakes in business. Markup = (Profit / Cost) x 100 — e.g. cost 100, sell 150, markup = 50% Margin = (Profit / Revenue) x 100 — e.g. cost 100, sell 150, margin = 33.3% The same transaction has different markup and margin percentages Use margin when talking to investors; markup when setting prices internally

Profit Margin Calculator

Profit margin is one of the most important metrics in business — it tells you what percentage of your revenue you actually keep as profit after covering costs. Whether you are a small business owner pricing a product, a startup founder pitching investors, or a finance professional analyzing company ...

PROFIT MARGIN CALCULATOR

Revenue (Total Sales)

Cost (Total Expenses)

Gross Profit

Profit Margin (%)

LIVE DIAGRAM

REVENUE BREAKDOWN

Enter revenue and cost to see breakdown

INDUSTRY BENCHMARKS

Software/SaaS60–80%

Consulting30–60%

Manufacturing5–20%

Retail2–10%

Restaurant3–9%

Live diagram · updates as you type

Created with❤️byeaglecalculator.com

HOW TO USE

1
Enter your total Revenue — this is your gross sales before any deductions.
2
Enter your total Cost — include all direct costs associated with generating that revenue.
3
The calculator instantly shows your Gross Profit and Profit Margin %.
4
Try entering just Revenue and a target Margin % — the calculator will tell you the maximum cost you can afford.
5
Compare your margin against industry benchmarks shown in the visualization.

WORKED EXAMPLE

A clothing brand sells 500000 worth of apparel in a month. Their fabric, manufacturing, packaging and shipping costs total 320000. Gross Profit = 500000 - 320000 = 180000. Profit Margin = (180000 / 500000) x 100 = 36%. This 36% margin is healthy for apparel. The brand can afford to spend up to 350000 on costs before dropping below 30% margin.

REFERENCE FORMULAS

FORMULA REFERENCE TABLE

NAME	FORMULA	DESCRIPTION
Gross Profit	Profit = Revenue - Cost	The absolute amount of profit before overhead
Profit Margin %	Margin = (Profit / Revenue) x 100	Profit expressed as a percentage of revenue
Revenue from Margin	Revenue = Cost / (1 - Margin/100)	Required revenue to achieve a target margin given a fixed cost
Cost from Margin	Cost = Revenue x (1 - Margin/100)	Maximum allowable cost to hit a target margin at a given price
Markup to Margin	Margin = Markup / (1 + Markup)	Convert a markup percentage to the equivalent margin percentage

ADVANCED FORMULAS

Net Profit Margin

Net Margin = (Revenue - All Expenses) / Revenue x 100

Margin after ALL expenses including tax, interest, and overhead

When to use: Use when you need the true bottom-line profitability of the entire business

EBITDA Margin

EBITDA Margin = EBITDA / Revenue x 100

Earnings before interest, tax, depreciation and amortisation as a % of revenue

When to use: Use when comparing operational efficiency across companies with different capital structures

Break-Even Revenue

Break-Even = Fixed Costs / Gross Margin %

The minimum revenue needed to cover all fixed costs

When to use: Use when planning minimum sales targets or evaluating business viability

WHERE IS THIS USED?

RETAIL & E-COMMERCE

Calculate margin on each product SKU and ensure pricing covers fulfilment, returns, and platform fees

Example: An Amazon seller with 500 product cost sets price at 850 to achieve 41% margin after fees

RESTAURANT & FOOD BUSINESS

Monitor food cost percentage and ensure menu pricing maintains target margins

Example: A cafe targets 65% margin on beverages and 60% on food to cover rent and staff costs

MANUFACTURING

Evaluate production efficiency and set wholesale prices for distributors

Example: A furniture maker with 8000 production cost prices at 14000 to achieve 43% margin

FREELANCING & SERVICES

Set hourly rates or project fees that account for non-billable time and business overhead

Example: A consultant with 50000/month overhead targets 60% margin to determine minimum billable rate

STARTUP & FUNDRAISING

Model unit economics and gross margin to demonstrate business viability to investors

Example: A SaaS startup shows 72% gross margin to justify a 10x revenue valuation multiple

PROCUREMENT & SOURCING

Evaluate supplier quotes and negotiate better costs to protect margin targets

Example: A buyer rejects a supplier quote that would reduce product margin below the 35% minimum threshold

FREQUENTLY ASKED QUESTIONS

MORE BUSINESS CALCULATORS

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Last updated: 14 March 2026 · Formula verified by EagleCalculator team · Eagle-eyed accuracy for every calculation.