Profit Margin Calculator

Gross margin, net margin, and what healthy looks like

Gross margin and net margin measure profitability at different levels. 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 overheads are out of control.

Industry benchmarks for Australian businesses

If your net margin falls below 5%, the culprit is usually one of three things: pricing too low, input costs too high, or overhead that has grown faster than revenue. Compare against your sector rather than using a single universal benchmark.

Markup vs margin: the distinction that changes your pricing

Markup is profit divided by cost. Margin is profit divided by selling price. The numbers look the same but produce different results:

A 50% markup gives 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. This calculator converts between the two so you can price accurately.

Worked example: wholesale distributor margin analysis

A Brisbane industrial supplies distributor with AU$8 million revenue reviews their annual numbers:

• Revenue: AU$8,000,000
• COGS: AU$5,600,000
• Gross profit: AU$2,400,000 (30% gross margin)
• Operating expenses: AU$1,920,000 (wages, rent, freight out, AP processing, software, insurance)
• Net profit: AU$480,000 (6% net margin)

The gross margin at 30% is healthy for distribution. But 80% of gross profit is consumed by operating expenses, leaving only 6% net margin. Investigation reveals that freight outbound costs have increased 18% year-on-year (a carrier raised rates), and AP processing costs (1.5 FTE at AU$97,500 total) account for 5.1% of overhead. Renegotiating the freight contract and automating AP to reduce headcount by 1 FTE could improve net margin from 6% to 8%, a AU$160,000 improvement on the same revenue.

How to use this profit margin calculator

1. Enter 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.
4. Compare against the industry benchmarks above.

Frequently asked questions

What is a good gross margin for an Australian business?

It depends on the industry. Wholesale distribution: 15-30%. Manufacturing: 25-40%. Construction: 15-25%. Software: 60-80%. If your margin is significantly below the range for your sector, start by examining your largest supplier invoices. Volume discounts, better payment terms, or supplier consolidation can improve gross margin.

How can I improve net margin?

Either grow revenue faster than costs, or reduce costs without affecting revenue. On the cost side, review overhead line items: unused subscriptions, manual AP processes consuming staff time, freight rates that have not been renegotiated. Use the invoice processing cost calculator to quantify your AP processing overhead.

Is margin calculated before or after GST?

Always on GST-exclusive figures. GST collected is not your revenue and GST paid is not your cost: both belong to the ATO. Including GST distorts margin calculations. Use the net amounts from your BAS or financial statements.