Profit Calculator: Gross Margin vs. Net Margin
This calculator separates the two profitability figures owners most often confuse. Gross margin shows whether your core product or service makes money before overheads. Net margin shows what the whole business actually keeps. A company can post a healthy gross margin and still lose money; the gap between the two numbers is where the problem lives.
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Gross Profit = Revenue − COGS
Gross Margin = (Revenue − COGS) ÷ Revenue × 100
Net Income = Revenue − COGS − Operating Expenses
Net Margin = Net Income ÷ Revenue × 100
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What each input means. Revenue is total sales for the period, before any costs. COGS (cost of goods sold) is only what the sold items or delivered services directly cost you: materials, wholesale price, direct labour, transaction fees on the sale. Operating expenses are the costs of running the business around the product — rent, salaries not tied to delivery, software, marketing, utilities. Keeping a cost in the wrong bucket is the most frequent error our editorial analysis finds in owner-prepared figures: misclassifying expenses changes both margins and hides which one is actually weak.
Worked example: revenue $240,000, COGS $96,000, operating expenses $102,000.
Read together: every $100 of sales leaves $60 after direct costs, and $17.50 after everything. If gross margin falls, the fix is pricing or supply cost. If gross margin holds but net margin falls, the fix is overhead discipline — the two margins point at different levers.
Limitations — when not to rely on this. The calculator works on period totals and says nothing about cash flow: profit on paper can coexist with an empty bank account when customers pay late. It also inherits whatever classification you feed it — owner salary, one-off purchases and seasonal inventory swings all distort a single period.
> [!TIP]
> Calculate both margins monthly, on the same classification rules every time. A margin series you can compare is worth more than a precise figure computed a different way each month.