What is the difference between gross and net profit margin?

Gross margin = (Revenue − COGS) ÷ Revenue. Net margin = Net Profit ÷ Revenue. Gross margin ignores operating expenses (salaries, rent, marketing). Net margin accounts for all expenses, taxes, and interest.

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Profit Margin Calculator

Calculate gross, operating, and net profit margins with a complete revenue-to-profit waterfall. Instantly see markup percentage and where your money goes.

Currency

Income Statement

Revenue (Sales)

Total sales / turnover

Cost of Goods Sold

Direct product/material cost

Operating Expenses

Salaries, rent, marketing

Other Expenses

Interest, taxes, one-offs

Margin Summary

Gross Margin

55.0%

$55,000.00

Operating Margin

30.0%

$30,000.00

Net Profit Margin

25.0%

$25,000.00 net profit

Markup %

122.2%

on cost of goods

Profit Waterfall

Revenue$100,000.00

− Cost of Goods-$45,000.00

= Gross Profit$55,000.00

− Operating Expenses-$25,000.00

= Operating Profit$30,000.00

− Other Expenses-$5,000.00

= Net Profit$25,000.00

Revenue Breakdown

Gross vs Operating vs Net Profit Margin

There are three profit margin levels, each telling a different story about your business health.

Gross margin (Revenue − COGS) ÷ Revenue tells you how efficiently you produce or source your product before any overhead. A 50% gross margin means for every $1 of sales, you keep $0.50 after direct costs.

Operating margin subtracts operating expenses (salaries, rent, marketing, depreciation) from gross profit. This shows the profitability of the core business before interest and taxes.

Net margin is the final bottom-line percentage after all expenses, interest, and taxes. This is the number investors and lenders focus on most.

Profit Margin Formulas

Gross Margin = (Revenue − COGS) ÷ Revenue × 100Operating Margin = Operating Profit ÷ Revenue × 100Net Margin = Net Profit ÷ Revenue × 100Markup % = Gross Profit ÷ COGS × 100

Profit Margin Benchmarks by Industry

Industry	Gross Margin	Net Margin
SaaS / Software	70–85%	15–25%
Ecommerce (DTC)	40–60%	5–15%
Amazon FBA	30–50%	10–20%
Dropshipping	15–30%	5–10%
Food & Beverage	60–70%	3–8%
Retail (physical)	20–40%	2–5%

Markup vs Margin — Key Difference

This is one of the most common pricing confusions. Markup is expressed as a percentage of cost. Margin is a percentage of revenue. A 100% markup on a $10 product gives a $20 sale price and a 50% gross margin — not a 100% margin.

Frequently Asked Questions

What is a good profit margin for ecommerce?

For ecommerce, 10–20% net margin is average, 20–30% is good, and above 30% is excellent. Gross margins should be 40%+ to sustain marketing and operating costs.

What is the difference between gross and net margin?

Gross margin = (Revenue − COGS) ÷ Revenue. It excludes operating expenses. Net margin accounts for ALL expenses including operating costs, taxes, and interest. Net margin is always lower than gross margin.

What is markup vs margin?

Markup is profit as % of cost. Margin is profit as % of revenue. A 100% markup = 50% margin. A 50% markup = 33% margin. Use the calculator to see both side-by-side.

How do I improve my profit margin?

Three approaches: (1) Increase revenue without increasing costs (volume or price), (2) Reduce COGS through supplier negotiation, (3) Cut operating expenses through automation and efficiency. The biggest lever is usually COGS or marketing spend.