Total revenue or sales income for the period.
Direct costs of producing goods or services sold.
Rent, salaries, utilities, marketing, and other overheads.
Interest, depreciation, one-off costs, and other non-operating expenses.
Gross Margin
60.0%
Net Margin
30.0%
Net Profit
$30,000.00
Revenue Breakdown
Everything you need to know about calculating and improving your profit margins
What is profit margin?
Profit margin is a measure of profitability expressed as a percentage of revenue. There are three key types. Gross margin is the percentage of revenue remaining after deducting the cost of goods sold (COGS) — it shows how efficiently you produce or source your products. Operating margin goes further by also subtracting operating expenses such as rent, salaries, and utilities — it reflects how well you manage day-to-day business costs. Net margin is the bottom-line figure after all expenses, including interest, depreciation, and one-off costs, have been deducted from revenue. It represents the true profitability of your business.
What is a good profit margin?
A "good" profit margin varies significantly by industry and business model. As a general benchmark, a net profit margin of 10% is considered average, 20% is good, and 5% or below is considered low. However, some industries naturally have lower margins — for example, retail and food service typically operate on net margins of 2-5%, while software and professional services may achieve 15-25% or more. What matters most is how your margin compares to similar businesses in your sector and whether it is trending upward or downward over time. Consistently improving margins indicate a healthy, well-managed business.
How can I improve my profit margins?
There are several strategies to improve your profit margins. Reduce costs by negotiating better rates with suppliers, switching to more cost-effective materials, or streamlining your supply chain. Increase prices where the market will support it — even small price increases can have a significant impact on margins if volume is maintained. Improve operational efficiency by automating manual processes, reducing waste, and optimising staffing levels. Focus on higher-margin products or services — analyse which offerings generate the best margins and allocate resources accordingly. Finally, review overheads regularly to eliminate unnecessary expenses such as unused subscriptions, excess office space, or outdated equipment.
What's the difference between markup and margin?
Markup and margin are both measures of profitability, but they are calculated differently and should not be confused. Margin is the percentage of the selling price that is profit — it is calculated as (Profit / Revenue) × 100. Markup is the percentage added to the cost price to arrive at the selling price — it is calculated as (Profit / Cost) × 100. For example, if a product costs $60 and sells for $100, the margin is 40% (40/100) but the markup is 66.7% (40/60). Margin is always lower than markup for the same transaction. Businesses often use markup when setting prices and margin when analysing overall profitability.
Note: This calculator provides estimates for illustrative purposes. Profit margins can vary based on accounting methods, tax treatment, and business-specific factors. For detailed financial analysis, consult a qualified accountant or financial adviser.
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Disclaimer: This calculator provides estimates based on current ATO rates and thresholds for the 2024–25 financial year. It does not constitute professional tax, financial, or legal advice. Your actual liability may differ depending on your individual circumstances. Always consult a qualified tax agent before making financial decisions. Read our terms