Calc

# Margin Calculator

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Net Profit = total revenue minus operating expenses, interest and taxes.
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Operating Income = total revenue minus operating expenses, depreciation, and amortization.

Use these margin calculators to work out the gross margin percentage, net profit margin or operating profit margin, as a measure of the profitability of your product or business.

#### Disclaimer

Whilst every effort has been made in building the margin calculator tool, we are not to be held liable for any special, incidental, indirect or consequential damages or monetary losses of any kind arising out of or in connection with the use of the calculator tools and information derived from the web site. This tool is here purely as a service to you, please use it at your own risk.

The calculations given by the margin calculator tool are only a guide. Please speak to an independent financial advisor for professional guidance. Read the full disclaimer.

## Profit margins

By using the margin calculators, you can get a gauge of the profitability of a business and, specifically, how well it turns its revenue into profit. Let's go through gross margin, net profit margin and operating profit margin in turn.

### Calculating gross margin

Gross margin is commonly used to measure the profitibility of a company's products. The figure demonstrates the percentage of revenue over and above the costs involved in making the product (COGS - cost of goods sold). COGS includes materials and labour involved directly in production.

Formula: Gross margin = (revenue - COGS) ÷ revenue

Example: You sell a product for \$60 and your costs to make the product are \$40.

Gross margin = (60 - 40) ÷ 60 = 0.33 = 33%

### Calculating net profit margin

Net profit margin is used to calculate the percentage of sales revenue that remains as true profit, after all costs and expenses are accounted for. It acts as a measure for the amount of net income (or net profit) a business makes per dollar or pound of revenue earned.

To calculate your net profit margin, take your total revenue figure (all types of income) and deduct your total expenses (tax, labour, materials, advertising, debt repayments, etc) to get your net income (or net profit) figure. Then, you divide that figure by your total sales revenue. For a more in-depth explanation of this, see our article profit margin formula - explained.

Formula: Net profit margin = (total revenue - total expenses) ÷ total sales

Example: Your business took \$400,000 in sales revenue last year, plus \$40,000 from an investment. You had total expenses of \$300,000.

Net profit margin = (440000 - 300000) ÷ 400000 = 0.35 = 35%.

This means that for every \$1 of revenue, the business makes \$0.35 in net profit.

The website Investopedia has a great article about how to determine what your ideal profit margin should be.

### Calculating Operating profit margin

Operating profit margin, also known as return on sales or EBIT margin, is commonly used as a measure of the amount of profit a business makes on a dollar or pound of sales, after costs of production (wages and materials), but before interest and tax.

The difference between gross profit margin and operating profit margin is that the gross profit margin includes direct production costs only (materials, labour involved directly in production), where-as operating profit margin takes into account for all operating expenses (labour, rent, office supplies, utilities, advertising, travel costs, insurance and taxes, etc).

Formula: Operating profit margin = operating income ÷ revenue 