Profit Margin Calculator 2026
Calculate gross, operating, and net profit margins from your revenue and cost numbers. Includes industry benchmarks so you can see how your business compares.
Last updated April 2026 · Sources: NYU Stern Damodaran industry margins database, IRS Statistics of Income 2024, SCORE small business benchmarks
Income statement
Profit margins
Industry profit margin benchmarks
Margins vary dramatically by industry. Compare your business to peers, not arbitrary targets.
| Industry | Gross margin | Operating margin | Net margin |
|---|---|---|---|
| SaaS / Software | 70-90% | 25-40% | 20-35% |
| Pharmaceuticals | 65-80% | 20-30% | 15-25% |
| Banks & Financial | N/A | 25-40% | 15-25% |
| Professional services | 40-60% | 10-20% | 8-15% |
| Manufacturing | 25-40% | 8-15% | 5-10% |
| Construction | 20-30% | 5-10% | 3-7% |
| Retail | 25-50% | 3-8% | 2-5% |
| Restaurants | 60-70% | 5-10% | 3-9% |
| Grocery | 20-30% | 2-4% | 1-3% |
Source: NYU Stern Damodaran industry margins data, updated January 2026. Smaller businesses within an industry typically have margins 2-5 percentage points lower than industry averages because of less scale.
Frequently Asked Questions
What is the difference between gross, operating, and net profit margin?
Gross margin is what is left after subtracting only the cost of goods sold (the direct cost of producing what you sell) from revenue. Operating margin subtracts both cost of goods and operating expenses like rent, payroll, and marketing — it shows whether the business itself is profitable before financing and taxes. Net margin is what is left after everything: cost of goods, operating expenses, interest on debt, and taxes. Net margin is what actually flows to the owners or shareholders. A typical business might have a 50% gross margin, 15% operating margin, and 8% net margin.
What is a good profit margin for a small business?
It depends heavily on the industry. Software and SaaS companies regularly hit 70-90% gross margins and 20-40% net margins because their cost of producing each additional copy is essentially zero. Restaurants typically run 60-70% gross margins but only 3-9% net margins because labor, rent, and food waste eat up most of the gross profit. Retail averages 25-50% gross and 2-5% net. Manufacturing varies widely but typical net margins are 5-10%. Compare yourself to industry averages, not arbitrary targets.
How do I calculate gross profit margin?
Gross profit margin = (Revenue − Cost of Goods Sold) / Revenue × 100. If you sold $500,000 worth of products and the materials, direct labor, and packaging cost $300,000, your gross profit is $200,000 and your gross margin is 40%. The key is that COGS includes only the variable costs directly tied to producing each unit — not overhead like office rent or salaries for non-production staff.
What is included in cost of goods sold (COGS)?
Direct materials (raw materials, components), direct labor (wages of workers who make the product), and direct manufacturing overhead (factory utilities, equipment depreciation). For service businesses, COGS includes the cost of delivering the service — typically the labor cost of the people doing the work. COGS does NOT include sales commissions, marketing, office rent, executive salaries, or interest expenses. These are operating expenses, not COGS.
Why is my net profit margin so much lower than my gross margin?
Because gross margin only subtracts direct production costs, while net margin subtracts everything. The gap shows how much of your revenue is being eaten by operating expenses, interest, and taxes. If your gross margin is 50% but net margin is 5%, it means 45 cents of every dollar in revenue goes to overhead and obligations, not just the cost of producing the product. This is a red flag if your operating expenses are inflated relative to industry norms.
How can I improve my profit margin?
Five levers: raise prices (the most powerful and underused), reduce direct costs (better supplier pricing, less waste), reduce operating expenses (renegotiate rent, automate repeatable work, eliminate unprofitable product lines), shift product mix toward higher-margin items, and increase volume to spread fixed costs. Most small business owners default to cutting costs, but raising prices by even 5% can do more for net profit than a 20% cost reduction in many cases — especially if your competitors are similarly priced.
What is the difference between markup and margin?
They sound similar but are calculated differently. Margin is profit divided by selling price (so a $100 item with $40 profit has a 40% margin). Markup is profit divided by cost (so the same item has $60 cost and the markup is 67%). A 50% markup equals a 33% margin, not a 50% margin. Confusing the two is a common mistake that leads businesses to underprice their products. If you want a 40% margin, you need to mark up your costs by about 67%.
How does industry benchmarking work for profit margins?
Industry benchmarks come from sources like the IRS Statistics of Income, NYU Stern Aswath Damodaran data, and industry trade associations. The most useful benchmarks compare you to companies of similar size in the same industry, because a small restaurant cannot match the margins of a national chain, and a SaaS startup cannot match the margins of a profitable enterprise software company. Pay particular attention to gross margin trends over time — a declining gross margin almost always signals a pricing or cost problem before the bottom line shows it.
What is EBITDA and how does it relate to profit margin?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is operating profit with depreciation and amortization added back. EBITDA margin (EBITDA / revenue) is popular for comparing companies because it strips out financing decisions and accounting conventions. Investors and acquirers often value businesses based on a multiple of EBITDA. For most small businesses, EBITDA is roughly the same as operating profit, since depreciation is small.
Should I worry more about gross margin or net margin?
Gross margin tells you whether your core business model works — whether the value you create exceeds the cost of producing it. Net margin tells you whether the overall enterprise (including overhead, financing, and taxes) is sustainable. If gross margin is healthy but net margin is weak, the fix is operational efficiency. If gross margin is weak, no amount of operational efficiency will save you — you have a pricing or cost-of-production problem that must be fixed first.
How do taxes affect profit margin calculation?
Net profit margin is calculated after taxes, so the corporate tax rate (currently 21% federal in the US plus state taxes ranging from 0-12%) directly reduces it. Pre-tax profit margin (sometimes called pretax margin) is a useful intermediate measure because it strips out tax variations between companies and locations. Many small businesses are pass-through entities (LLCs, S-corps) where taxes are paid by the owners personally rather than the business, which complicates direct comparisons.
What does a negative profit margin mean?
You are losing money. This is normal for early-stage startups investing in growth, but unsustainable in the long run for any business. A negative gross margin means you are selling for less than it costs to produce, which is the worst position to be in — every additional sale loses more money. A negative net margin with positive gross margin means your fixed costs and overhead are eating up the gross profit, which is fixable through cost cuts or revenue growth.
Sources: NYU Stern (Damodaran) industry margins database, IRS Statistics of Income 2024, SCORE small business performance benchmarks, Federal Reserve Beige Book.
Disclaimer: Estimates only. Not a substitute for accounting advice. Industry benchmarks are averages and individual business results vary widely.