Calculate your profitability
with our margin calculator

What is a profit margin?

Profit margin is the percentage of revenue that exceeds your costs. It tells you how much profit you're making on each sale after covering expenses. For example, if you sell a product for $100 and it costs you $70 to produce, your profit margin is 30%.

How do I calculate profit margin?

To calculate profit margin, use these formulas:

For example, if you sell a product for $100, with a cost price of $60, VAT of $20, and shipping costs of $5:

• Profit = $100 - ($60 + $20 + $5) = $15
• Profit Margin = ($15 / $100) × 100 = 15%

How does VAT affect my profit margin?

Value Added Tax (VAT) directly impacts your profit margin because it's a percentage of your selling price that you must collect and remit to the government. Our calculator allows you to include VAT in your calculations to see its effect on your bottom line.

For example, if you sell a product for $100 with a 20% VAT rate:

• VAT amount: $20 (20% of $100)
• If your cost price is $60, your profit without considering VAT would be $40
• But your actual profit after VAT is $20 ($100 - $60 - $20)
• This reduces your profit margin from 40% to 20%

What is a good profit margin?

A "good" profit margin varies by industry. Here are some average net profit margins:

• Software (System & Application): 24.2%
• Pharmaceuticals: 17.6%
• Retail (General): 3.8%
• Restaurants: 14.0%
• Oil & Gas (Production and Exploration): 35.2%

These figures are based on data from NYU Stern as of January 2024.

How do I increase my profit margin?

Strategies to improve profit margin include:

• Reducing production or operational costs
• Increasing prices (where market conditions allow)
• Improving operational efficiency
• Focusing on high-margin products or services
• Enhancing customer retention to reduce acquisition costs

What types of additional costs should I include?

When calculating your true profit margin, it's important to include all relevant costs. Our calculator allows you to add up to 5 different additional costs, such as:

• Shipping and handling
• Platform fees (e.g., Amazon, Stripe, PayPal)
• Packaging costs
• Marketing and advertising costs per unit
• Import duties or tariffs

By including these costs alongside VAT, you'll get a more accurate picture of your true profit margin.