Know the Figures

Profit Margin Calculator (Gross, Operating, Net)

Gross, operating and net margin from one P&L, and where each slice of revenue goes.

Replaces: Accounting-software margin reports

How to use it

Enter the lines of your profit and loss statement for one period. The calculator works down from revenue to net profit and shows each subtotal as a share of revenue, so you can see at which step the margin goes.

Where the number comes from

  • Gross profit is revenue less cost of goods sold. Gross margin is gross profit as a percentage of revenue.
  • Operating profit is gross profit less operating expenses less depreciation and amortisation. Operating margin is operating profit over revenue.
  • Net profit is operating profit less interest, plus other income, less tax. Net margin is net profit over revenue.
  • EBITDA margin adds depreciation and amortisation back to operating profit before dividing by revenue.
  • Every line in the table is shown as a percentage of revenue, with costs negative, so the shares add down to the net margin.

What goes wrong

The part most calculators leave out.

  • What sits in cost of goods sold is a choice. One business puts delivery staff and hosting in it, another puts them in operating expenses. Two gross margins only compare if the line was drawn in the same place.
  • Margin is not markup. A 40% markup on cost is a 28.6% margin on price; quoting one as the other is a common pricing mistake.
  • One period can mislead. A big one-off cost, an annual bonus or a stock write-down in the month you pick will move every margin below it.
  • Tax here is the figure you enter. Real tax depends on allowances, losses carried forward and local rules, so net margin before tax is often the fairer comparison between years.
  • Profit is not cash. A business with a good net margin can still run out of money if customers pay slowly or stock builds up.

Where 2.4m of revenue goes

A business turns over 2.4m. Cost of goods sold of 1,380,000 leaves 1,020,000 of gross profit, a 42.5% gross margin. Operating expenses of 640,000 and 60,000 of depreciation and amortisation bring operating profit down to 320,000, a 13.33% operating margin. Interest of 45,000 and tax of 70,000 leave 205,000 of net profit, an 8.54% net margin. Quoted as “a 42.5% margin”, the business sounds five times more profitable than it is. One extra point of gross margin is worth 24,000, which is about 12% more net profit — the reason small changes in price or direct cost matter so much more than they look.

Questions

What is the difference between gross, operating and net margin?
Gross margin counts only the direct cost of what you sold. Operating margin also takes off running costs and depreciation. Net margin takes off everything, including interest and tax. Each one answers a different question, so say which one you mean.
Does depreciation go in operating expenses?
In many statements it does. Here it is a separate line so that EBITDA can be read straight off: operating profit is gross profit less operating expenses less depreciation and amortisation. If your operating expenses already include it, enter 0 for depreciation.
What is a good profit margin?
It depends on the model. A software business and a wholesaler can both be healthy with gross margins far apart. Compare against your own past periods and close peers, not an average across sectors.
Does anything I type get sent anywhere?
No. The whole calculation runs in your browser. Nothing is sent to us or logged, and there is no account to create. Your browser keeps the figures with this tab’s history so that Back and Reload bring them back, and Reset clears them.

Last updated .

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