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Calculate gross profit margin, net profit margin, and operating margin from revenue and cost figures. Also find the required selling price to achieve any target profit margin — essential for pricing strategy and financial analysis.
Profit margin is the percentage of revenue that becomes profit after accounting for costs. Gross margin shows manufacturing efficiency. Operating margin shows operational efficiency. Net margin shows overall profitability. Understanding all three gives a complete picture of business financial health.
There are three main profit margin metrics, each telling a different part of the profitability story. Analyzing all three reveals where value is created and where costs erode it — providing specific areas for improvement.
| Margin Type | Formula | What It Measures |
|---|---|---|
| Gross Profit Margin | (Revenue - COGS) / Revenue | Production/service delivery efficiency |
| Operating Profit Margin | Operating Income / Revenue | Operational efficiency before interest/tax |
| Net Profit Margin | Net Income / Revenue | Overall bottom-line profitability |
| EBITDA Margin | EBITDA / Revenue | Cash-flow based profitability |
| Contribution Margin | (Revenue - Variable Costs) / Revenue | Variable cost efficiency |
| Industry | Gross Margin | Net Margin | Notes |
|---|---|---|---|
| Software / SaaS | 60-85% | 15-25% | High gross, high net |
| Retail | 20-40% | 2-5% | Low net due to overhead |
| Restaurants | 60-70% | 3-9% | High food cost, labor-intensive |
| Manufacturing | 25-45% | 5-10% | Equipment and labor costs |
| Consulting / Services | 60-80% | 10-20% | Low COGS, high value |
| Healthcare | 30-50% | 5-12% | Regulated, high overhead |
| Construction | 15-25% | 2-6% | Low margin, high volume |