In its simplest terms, profit margin represents the percentage of sales that has turned into profit. For example, if your company has 20% profit margin, that means for every $1.00 of sales generated, you have a profit of $0.20. Generally, profit margin tells you how profitable your pricing is. A low-profit margin means you have very little room for error and any unexpected problems, like a sudden increase in the price of raw materials or shipping, could spell disaster. A high-profit margin indicates a lot more breathing room, however, it is always in your best interest to look for improvements and fix inefficiencies because that usually equates to a healthier bottom line.

Our profit margin calculator can give you your Gross Profit Margin – that is, your profit (revenue minus the cost of goods) divided by your revenue. Or, if you factor in additional costs, such as rent, employee wages, and taxes, the profit margin calculator can also give you your Net Profit Margin. Conversely, if you have targeted profit margin or revenue goals, the calculator can give you a target cost of goods and other expenses.