Profit Margin Calculator

Understanding gross margin, net margin, and what healthy looks like

Gross margin and net margin measure profitability at different levels of the business. Gross margin — (Revenue − COGS) ÷ Revenue — tells you how much of each sales dollar survives after covering direct production costs. Net margin goes further: it deducts operating expenses, interest, and tax, giving you the percentage of revenue that becomes actual profit. A business can have a healthy gross margin and still lose money if its overheads are out of control.

What counts as a "healthy" margin varies significantly by industry. Australian manufacturers typically run gross margins of 25–40%; wholesale distributors often sit at 15–30%; professional services can reach 50–70% at the gross level. Net margins across most Australian SMB sectors tend to land between 5–15%. If yours falls below that range, the culprit is usually one of three things: pricing too low, input costs too high, or overhead that has grown faster than revenue.

The distinction between markup and margin trips up many businesses. Markup is profit divided by cost; margin is profit divided by selling price. A 50% markup on a AU$100 item gives a AU$150 sell price and a 33.3% margin — not 50%. If you target margin figures when quoting to customers but apply markup percentages when setting prices, you will consistently underprice.

How to use this profit margin calculator

1. Enter your revenue and cost of goods sold to calculate gross margin.
2. Add operating expenses (rent, wages, software, insurance) to calculate net margin.
3. Use the markup converter to switch between margin and markup percentages — useful when setting prices or quoting jobs.
4. Compare your figures against typical industry benchmarks to identify where margin is being lost.

What is a good gross margin for an Australian business?

It depends heavily on your industry. Wholesale distribution: 15–30%. Light manufacturing: 25–40%. Food manufacturing: 20–35%. Construction: 15–25%. Software/SaaS: 60–80%. Compare your gross margin against peers in your sector rather than using a single universal benchmark. If your margin is significantly below the range for your industry, start by examining your largest supplier invoices — volume discounts, better payment terms, or supplier consolidation can move the dial quickly.

How can I improve my net margin?

Net margin improvement comes from either growing revenue faster than costs, or reducing costs without affecting revenue. On the cost side, review your overhead line items: are there subscriptions or services you no longer use? Is your AP process consuming staff time that could be eliminated with automation? Finance and admin costs — including the time spent processing supplier invoices manually — are often underestimated drags on net margin.

Is margin calculated before or after GST?

Always calculate margin on GST-exclusive figures. GST collected is not your revenue — it belongs to the ATO. If you include GST in your revenue and costs figures, your margin calculation will be distorted. Use the net amounts reported on your BAS for consistency with your financial statements.