Profit Margin Calculator - Calculate Your Profit Margins
Seller Bookkeeping

Profit Margin Calculator

Calculate gross, operating, and net profit margins instantly

Understanding Profit Margin

Profit margin is the percentage of revenue that becomes profit. A 30% profit margin means you keep $0.30 of every dollar sold. Higher margin = more profitable.

3 Types of Profit Margins:

Gross Margin: (Revenue - COGS) ÷ Revenue = Shows production efficiency

Operating Margin: (Operating Income) ÷ Revenue = Shows core business profitability after operating expenses

Net Margin: (Net Income) ÷ Revenue = Bottom line profit after ALL expenses

Gross Profit Margin

(Revenue - COGS) ÷ Revenue × 100 = Gross Margin %

Total sales before any expenses
Product costs, shipping, fulfillment, etc.
Revenue: $0.00
- COGS: $0.00
= Gross Profit: $0.00
Gross Margin: 0%
Healthy gross margin: 40%+. Below 25% is risky for most e-commerce.

Real-World Profit Margin Examples

Example 1: Amazon FBA Product (HEALTHY)

  • Revenue: $10,000
  • COGS (products): $4,000
  • Amazon Fees: $1,500
  • Operating Costs: $2,000
  • Taxes: $800
Gross Margin = ($10K - $4K) / $10K = 60%
Net Margin = ($10K - $4K - $1.5K - $2K - $0.8K) / $10K = 17% ✓ GOOD

Example 2: Low-Margin Commodity (RISKY)

  • Revenue: $10,000
  • COGS: $7,500
  • Fees & Expenses: $1,800
  • Taxes: $500
Gross Margin = ($10K - $7.5K) / $10K = 25% ⚠ RISKY
Net Margin = ($10K - $7.5K - $1.8K - $0.5K) / $10K = -0.8% ✗ LOSING MONEY

Example 3: High-Margin Digital Product (EXCELLENT)

  • Revenue: $10,000
  • COGS: $1,000 (mostly delivery/hosting)
  • Operating Costs: $3,000
  • Taxes: $1,200
Gross Margin = ($10K - $1K) / $10K = 90% ✓ EXCELLENT
Net Margin = ($10K - $1K - $3K - $1.2K) / $10K = 48% ✓ EXCEPTIONAL

Critical Margin Insights

  • Gross margin shows efficiency: Your ability to produce profitably. 40%+ is healthy.
  • Operating margin shows scalability: After covering core operations. 15%+ means business is scalable.
  • Net margin is the truth: What you actually keep. Most sellers surprise how low this really is.
  • Compare margins over time: Declining margins = rising costs. Investigate immediately.

Profit Margin Facts

30%

Average gross margin for e-commerce (low range)

15%

Average net profit margin (very generous)

40-60%

Hidden costs reduce gross to net margin by this %

40%

Healthy gross margin for most businesses

5%

Minimum net margin to stay in business

1-2%

How margin drops with each platform/channel added

Profit Margin FAQ

What's a "good" profit margin?

Gross margin: 40%+ is healthy. 25-40% is acceptable. Below 20% is risky for physical products. Net margin: 10%+ is excellent. 5-10% is healthy. 2-5% is barely profitable. Below 2% means you're struggling.

Why is my net margin so low?

Most sellers are shocked to discover their net margin because hidden costs destroy gross profit: Amazon referral fees (15%), fulfillment costs, storage fees, PPC advertising, payment processing, taxes (15%+ self-employment), and overhead. Each adds 5-10% in costs. This is why tracking all expenses is critical.

Should I focus on gross or net margin?

Both. Gross margin tells you if your product is viable (can you produce it profitably?). Net margin tells you if your business is viable (do you make real money after everything?). A high gross margin with terrible operating efficiency yields low net margin. A low gross margin can NEVER yield acceptable net profit.

How do I improve my profit margins?

To increase gross margin: reduce COGS (better supplier, bulk discounts, local sourcing). To increase net margin: reduce fees (FBM vs FBA), optimize PPC efficiency, eliminate unprofitable SKUs, negotiate better rates, or raise prices. Most sellers can improve margins by 5-15% with focused action.

What happens if I price based on gross margin?

You'll go broke. If you charge $25 for a product with $10 COGS ($15 gross profit), you think you're making money. But Amazon fees ($3.75), fulfillment ($2.92), marketing ($1), and taxes ($2) eat $9.67, leaving you $5.33. That's only 21% net margin. Price based on NET margin (aim for 10%+ at minimum).

How often should I review margins?

Monthly. Calculate margins by product and overall. Trends matter more than single numbers: if your margin dropped 5% month-over-month, investigate. Causes: Amazon raised fees, customers demand lower price, competitor undercut you, supplier increased costs, or your PPC is inefficient. Early detection saves your business.

Can I have negative profit margin?

Yes, unfortunately. Negative net margin means you LOSE money on every sale. This happens when: COGS is too high relative to price, fees are astronomical, operating costs are excessive, or you're giving away inventory (inventory disposal). Kill negative-margin products immediately. Losses compound monthly.

How does channel affect profit margin?

Every channel has unique costs: Amazon FBA (15-40% total fees), Shopify (2-3% payment + overhead), eBay (12-15% fees), direct website (lower fees but higher marketing). Same product might yield 20% net margin on Amazon but 35% direct. Calculate margins PER CHANNEL to identify your most profitable sales source.