Profit margin percentage calculator
Profit margin is a financial metric that measures the profitability of a business or a specific product or service by determining the percentage of profit earned from each unit of revenue generated and is a good indicator of your business health. Use our profit margin percentage calculator and get started with the signals to assess the health of your business.
Use our gross and net profit margin calculators to help determine your store's profitability and also dive deeper into the details of a Shopify store's valuation methodology in this blog post.
Gross Profit Margin
Gross profit margin is the percentage of revenue that exceeds the cost of goods sold. It measures the profitability of a company’s products or services before accounting for other operating expenses, such as marketing, administration, and research and development.
Net Profit Margin
Net profit margin is the percentage of revenue that remains after all operating expenses, interest, taxes, and preferred stock dividends have been deducted from a company’s total revenue. It measures the profitability of a company’s products or services after accounting for all expenses.
FAQ
Profit margin is a financial metric that measures the profitability of your business or specific products/services. It indicates the percentage of profit earned from each unit of revenue generated. It is important because it helps assess your business’s health, regardless of the revenue earned. High revenue alone does not guarantee profitability if costs are high.
(Net Sales - COGS - Marketing Expenses - Operating Expenses - Interest - Taxes) / Net Sales × 100
(Net sales - COGS) / (Net sales) × 100
Gross profit margin measures the profitability of your products or services before considering other operating expenses. It gives you an idea of how much profit you make from each unit of revenue, indicating the efficiency of your production or acquisition processes.
Gross profit margin represents the profitability of your products or services before considering other operating expenses, while net profit margin reflects profitability after deducting all operating expenses, interest, taxes, and preferred stock dividends. Net profit margin provides a more comprehensive view of your overall business profitability.
Total revenue or net sales can be calculated by subtracting any returns or refunds from the gross sales figure. This gives you the actual revenue generated by the sale of your products or services.
Cost of goods sold (COGS) refers to the direct costs incurred in producing or acquiring the goods or services sold by your company. It includes expenses such as raw materials, manufacturing costs, or wholesale costs. COGS directly affects profit margin because it determines the amount you need to subtract from the total revenue to calculate profitability.
Operating expenses for a business typically include costs associated with promoting your products or services (marketing expenses), ongoing business operations, administrative expenses, and research and development costs. These expenses are necessary for maintaining your business and generating revenue.
Profit margin calculations provide valuable insights into the health of your business. By analyzing your gross and net profit margins, you can assess the efficiency of your operations, identify areas of improvement, and make informed business decisions. Monitoring profit margins over time helps you gauge the overall financial performance and profitability of your business.
Explore other shopify profit margin calculators
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