Calculating your margin will help you find the right selling price for your product so you can optimize your profits. To use this calculator, simply enter the gross cost for your item and then how much money you’d like to make on each sale.
Generally speaking, your profit margin is what your company uses to determine what percentage of sales has turned into profits. It’s also considered your bottom line after all other expenses have been taken into account.
To maximize your cash flow, you'll want to increase your gross profit margins, which can be accomplished by either increasing profits or decreasing costs.
To calculate your margins with this free calculator, follow these instructions:
There are 5 main elements of an income statement, also known as a profit and loss (P&L) statement:
There are 5 main elements of an income statement, also known as a profit and loss (P&L) statement:
What is gross profit margin?
Gross profit margin is a metric you can use to measure your business’ profitability by comparing the revenue you generate (net sales) and the costs directly related to the products you sell (costs of goods sold). These costs do not include any operating costs, taxes, and other expenses. Here’s how you calculate gross profit margin:
Gross Profit Margin = (Net Sales - Costs of Goods Sold) / Net Sales * 100
With gross profit margin, you can find out whether the revenue your business earns is fully covering your production costs.
Why is gross profit margin important?
A high gross profit margin tells you that your business is successfully earning more than enough profit to cover production costs. A low gross profit margin, on the other hand, tells you that your business is only slightly generating enough profit to cover production costs.
What is net profit margin?
Net profit margin is a metric you can use to measure your business’ profitability by comparing your net income with revenue. Net income is the revenue you have left over after costs of goods sold, operating costs, and other expenses like taxes, debts, and related payments. Net income can also take into account other sources of income you generate outside of your business. Here’s how you calculate net profit margin:
Net Profit Margin = (Revenue - Costs of Goods Sold - Operating Costs - Taxes - Other Expenses) / Revenue * 100
With net profit margin, you can find out how much of each revenue your business makes turns into profit after accounting for associated costs and expenses.
Why is net profit margin important?
A high net profit margin tells you that your business is turning a considerable amount of revenue into profit compared to the costs your business is incurring.
Why did my profit margin increase?
Your profit margin might increase due to one of the following factors:
Why did my profit margin decrease?
Your profit margin might decrease due to one of the following factors:
How can I increase my profit margin?
You can increase your profit margin in a few different ways. First, you could increase your total net sales to increase revenue while keeping your costs of selling those goods and operating expenses stable. If you’re unable to increase your total net sales, see if you’re able to increase the price of your goods to increase total revenue. You can find ways to decrease your selling costs and operating expenses.
What's the difference between gross and net profit?
Gross profit margin shows the percentage of revenue your business makes that exceeds the costs associated with producing the goods you sell.
Net profit margin, on the other hand, shows the percentage of revenue your business makes that becomes net profit compared to total operating costs and related expenses.
Where can I find profit margin data?
You can find both gross profit margin and net profit margin data in the profit and loss (P&L) statement that you can generate for free when you sign up for Wave. By analyzing your income, cost, and operating expense data, Wave will automatically generate a profit and loss statement that clearly displays both your gross profit and net profit.
Powerful accounting software that has everything you need to confidently run your business.
