Profit Margin Calculator

Each margin strips out one more layer of costs, so you can see exactly where profit disappears. Gross margin = (revenue - cost of goods sold) / revenue. It measures how much markup you keep after the direct cost of producing the product itself. Operating margin = (gross profit - operating expenses) / revenue. It folds in payroll, rent, marketing, and the other fixed costs of running the business, but excludes interest and taxes. This is the same number as EBIT margin and is the cleanest read on how profitable the underlying operations are. Net margin = net profit / revenue, after interest and taxes. It is the bottom line that flows to retained earnings or dividends. A SaaS business often has an 80% gross margin and a 25% net margin, because most of the gap is sales, marketing, and R&D operating expenses.

Net margin benchmarks vary by orders of magnitude across industries. Retail typically lands at 2-3% (grocery is around 1-2%, big-box retail 3-5%), because high inventory turnover and competition compress per-unit profit. Restaurants run 5-15%, with full-service casual dining usually 5-10% and limited-service or fast-casual closer to 10-15%. Professional services (law firms, agencies, consulting) usually deliver 10-20% because the main cost is labor and pricing power is high. Software and SaaS sit at 25-30%, sometimes much higher at scale, because the marginal cost of one more customer is near zero. Compare your number against the band for your sector, not the cross-industry average.

Operating margin (EBIT margin) is operating profit divided by revenue, where operating profit already has depreciation and amortization deducted. EBITDA margin adds those non-cash charges back, so EBITDA = EBIT + depreciation + amortization. EBITDA margin is usually higher and is heavily used in business valuation (the EV/EBITDA multiple) because it strips out accounting choices around useful life and goodwill, giving a cleaner comparison across companies with different capital structures and asset bases. EBIT margin is closer to true economic profit for asset-heavy businesses, since the wear on those assets is a real cost even if the cash outlay happened years ago. This calculator does not break out depreciation, so EBIT margin and operating margin are reported as the same figure; for an EBITDA view, use the EBITDA calculator.

21% is the US federal corporate income tax rate. The Tax Cuts and Jobs Act of 2017 (the Trump tax overhaul) lowered the top federal corporate rate from 35% to a flat 21% starting in tax year 2018, and that rate remains in effect for 2026. State corporate income taxes add roughly 0% to 9.8% on top depending on the state (zero in South Dakota and Wyoming, 9.8% top rate in Minnesota), so a typical combined effective rate lands around 25-28%. If you are modeling a real business, override the default with your actual blended effective rate from prior-year tax returns. Pass-through entities (S-corps, LLCs, partnerships, sole proprietors) do not pay the 21% corporate rate at all; the income is taxed at the owner's personal rate, which can run from 10% to 37% federal.

There are only three real levers, and they line up with the three margin tiers. To lift gross margin: raise prices (the single highest-leverage move, since every dollar of price hike drops straight to the bottom line), or reduce cost of goods sold by renegotiating supplier contracts, switching to cheaper inputs without hurting quality, batching production runs, or moving to higher-margin product mix. To lift operating margin: cut overhead (sublet unused office space, automate manual work, freeze non-essential hiring), eliminate underperforming product lines, and tighten marketing spend so customer acquisition cost stays well below customer lifetime value. To lift net margin specifically: refinance high-interest debt to a lower rate, and check whether your business structure (C-corp vs S-corp vs LLC) is still the most tax-efficient given your revenue level. Price increases tend to do more for margin in 30 days than 12 months of cost-cutting, because the gains compound on every future sale.