Profit margin calculator

Gross margin only subtracts the direct cost of what you sold — ingredients, inventory, materials, the contractor you paid to do the job. It tells you whether each sale is worth making.

Net margin subtracts everything: rent, software, ads, insurance, your own salary, interest and tax. It tells you whether the whole business is worth running. A bakery can show a healthy 65% gross margin on cookies and still have a 3% net margin once the lease and staff are paid.

A candle maker sells $50,000 of candles in a year. Wax, wicks, jars, labels and packaging cost $18,000, so gross profit is $32,000 and gross margin is 64%.

Market stall fees, Etsy fees, a website and photography add up to $14,000, and $3,000 goes to taxes. Net profit is $15,000, a 30% net margin. Before any of that, the owner should ask: is $15,000 a fair return on the hours put in?

There is no universal number — it depends almost entirely on the business model:

• Service and software businesses have low direct costs, so gross margins are often high and the real question is net margin after your time.
• Retail, food and product businesses carry inventory and spoilage, so gross margins are lower and volume matters more.
• Anything you resell (dropshipping, wholesale, reselling) lives or dies on a few percentage points.

The more useful benchmark is your own trend: compare this quarter to last, and compare your margin to what competitors charge for the same thing.

• Raise prices on your best-selling or most-loved offers first; customers who love them are least price-sensitive.
• Bundle low-cost add-ons that customers value (a gift box, a priority slot, a maintenance check).
• Cut the cost of goods by buying in larger quantities once demand is proven.
• Drop products or services with thin margins that eat time.
• Track payment and platform fees as part of COGS — they quietly take 3–15% of revenue.