Profit Margin Calculator

Calculate profit margin to measure company profitability as a percentage of revenue.

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What is Profit Margin?

Profit Margin is a financial ratio that measures what percentage of revenue becomes profit after accounting for all expenses.

Profit margin is calculated by dividing net income by revenue and multiplying by 100 to express it as a percentage. It shows how much profit a company retains from each dollar of sales after covering all costs.

A higher profit margin indicates better cost control and pricing power. Profit margins vary significantly across industries, so it’s important to compare companies within the same sector for meaningful analysis.

Profit margin is a key indicator of business efficiency and profitability. It helps investors assess management’s ability to control costs and generate returns, while also providing insight into the company’s competitive position and operational effectiveness.

Profit Margin Formula

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Net Income} &= \mathrm{NI}\newline\text{Revenue} &= \mathrm{R}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Profit Margin} = \mathrm{PM} \newline = \frac{\mathrm{NI}}{\mathrm{R}} \times \mathrm{100{\%}}\end{gather*}

Profit Margin Calculation Examples

Example 1

A company generates revenue of $1,000,000 and achieves net income of $100,000.

Let's calculate the profit margin for this company:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Net Income}\space(\mathrm{NI}) &= \mathrm{{\$}100{,}000}\newline\text{Revenue}\space(\mathrm{R}) &= \mathrm{{\$}1{,}000{,}000}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Profit Margin}\space(\mathrm{PM})\newline\begin{aligned}&= \frac{\mathrm{NI}}{\mathrm{R}} \times \mathrm{100{\%}}\newline&= \frac{\mathrm{{\$}100{,}000}}{\mathrm{{\$}1{,}000{,}000}} \times \mathrm{100{\%}}\newline&= 0.1 \times \mathrm{100{\%}}\newline&= \mathrm{10{\%}}\end{aligned}\end{gather*}

This indicates that the profit margin for the company is 10%, meaning that 10% of every dollar in revenue becomes profit after accounting for all expenses.

Example 2

A service business reports revenue of $500,000 with net income of $45,000.

Let's calculate the profit margin for this service business:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Net Income}\space(\mathrm{NI}) &= \mathrm{{\$}45{,}000}\newline\text{Revenue}\space(\mathrm{R}) &= \mathrm{{\$}500{,}000}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Profit Margin}\space(\mathrm{PM})\newline\begin{aligned}&= \frac{\mathrm{NI}}{\mathrm{R}} \times \mathrm{100{\%}}\newline&= \frac{\mathrm{{\$}45{,}000}}{\mathrm{{\$}500{,}000}} \times \mathrm{100{\%}}\newline&= 0.09 \times \mathrm{100{\%}}\newline&= \mathrm{9{\%}}\end{aligned}\end{gather*}

This calculation shows that the profit margin for the service business is 9%, indicating the percentage of revenue that translates into profit.

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