Business
How to Calculate Profit Margin: Formulas for Business Owners
Just ask and get Editorial Team(Business Finance)
Updated 2026-09-19
6 min read
Key Takeaway:A guide for founders and merchants on pricing products for healthy profitability and differentiating margin from markup.
Gross Margin vs Net Margin
Profit margin reveals what percentage of each sales dollar is retained as earnings. Gross margin measures direct unit profitability after cost of goods (COGS). Net margin measures what remains after all operating expenses, taxes, interest, and marketing are paid.
The Gross Margin Formula
$$\text{Gross Margin} = \left(\frac{\text{Revenue} - \text{COGS}}{\text{Revenue}}\right) \times 100\%$$
Frequently Asked Questions
What is a healthy profit margin?
While margins vary across industries, a 10% net profit margin is considered average, and 20% or higher is considered strong.