How to calculate margin

Margin (calculation)

The margin formula is profit divided by revenue, times 100. Margin is expressed as a percentage.

There are two main types of margin:

• Gross profit margin – the percentage of income left after paying for the goods and services you sell (COGS or COS).
• Net profit margin – the percentage of income left after paying all costs and taxes (or sometimes taxes are omitted and it can be net profit margin before tax).

Gross profit margin

Usually, when the term ‘margin’ is used, it’s referring to gross profit margin. If your gross profit margin is low you’ll find it harder to pay for other expenses like utilities and rent. And this then reduces your chances of making a net profit.

Gross profit margin = (Gross profit / Revenue) x 100

Net profit margin

Your net profit margin shows what percentage of your revenue is actual profit after all expenses are deducted. This number shows how efficient your business is at turning income into profit.

Net profit margin = (Net profit / Revenue) x 100