Business formula

Profit Margin Formula

Learn the profit margin formula, the difference between profit and margin, and how revenue and cost affect the result.

FormulaProfit margin % = ((revenue − cost) ÷ revenue) × 100

What the formula means.

First subtract cost from revenue to find profit. Then divide that profit by revenue and multiply by 100 to express the share of revenue kept as profit.

Margin uses revenue as the denominator.

The meaning of cost must stay consistent between comparisons.

Gross margin and net margin use different cost definitions.

Variables.

R

Revenue

Total sales or income included in the calculation.

C

Cost

The costs included in the chosen margin definition.

P

Profit

Revenue minus included cost.

Worked example.

$1,000 revenue and $650 cost

$1,000 − $650 = $350 profit
$350 ÷ $1,000 = 0.35
0.35 × 100 = 35%

The profit margin is 35%.

Try your own numbersProfit Margin Calculator

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Common mistakes.

Dividing profit by cost, which calculates markup instead of margin.
Mixing gross cost in one period with net costs in another.
Comparing businesses without checking what each margin includes.

Quick questions.

Is margin the same as markup?

No. Margin divides profit by revenue; markup divides profit by cost.

Can margin be negative?

Yes. If included costs exceed revenue, profit and margin are negative.