Profit Calculator — Free Online Profit Tool

How to Use the Profit Calculator

This profit calculator gives you a clear picture of your business profitability by computing both gross and net profit along with their margin percentages. Whether you are reviewing monthly results, planning a new business, or evaluating a potential investment, follow these steps to get accurate profit figures.

1. Enter your total revenue. This is the total income from sales for the period you are analyzing. Use gross revenue (before any deductions) for the most accurate calculation. For monthly analysis, enter one month of sales. For annual analysis, enter your full-year revenue. If you have multiple revenue streams, add them together for the total.
2. Enter your cost of goods sold (COGS). Include all costs directly tied to producing or acquiring what you sell. For product businesses, this includes materials, manufacturing labor, and shipping to your warehouse. For service businesses, this is the direct labor cost of delivering the service. Do not include overhead like rent or administrative salaries — those go in operating expenses.
3. Enter your operating expenses. These are all the indirect costs of running the business: rent, utilities, office salaries, marketing, insurance, software subscriptions, professional services, and other overhead. If you are unsure what to include, look at the "Operating Expenses" line on your income statement (also called the profit and loss statement).
4. Review gross profit and margin. Gross profit (revenue minus COGS) shows how much money you make before overhead. Gross margin percentage tells you what portion of each revenue dollar is available to cover operating expenses and generate profit. A declining gross margin usually indicates rising production costs or pricing pressure.
5. Review net profit and margin. Net profit (gross profit minus operating expenses) is your bottom line — what the business actually earns after all costs. Net margin percentage is the single most important profitability metric. Investors, lenders, and buyers look at net margin to assess business value and sustainability.
6. Analyze the pie chart. The visual breakdown shows how your revenue is distributed among COGS, operating expenses, and net profit. A healthy business shows a meaningful green (profit) slice. If COGS or expenses dominate, you need to either increase prices, reduce costs, or both.

Try changing inputs to model different scenarios. What happens to net profit if you raise prices 10%? What if you reduce COGS by negotiating with suppliers? What if you cut operating expenses by 15%? This "what-if" analysis is one of the most valuable uses of the calculator for business planning.

Understanding the Profit Formulas

Profit calculation is the foundation of business financial analysis. These formulas, used by accountants and financial analysts worldwide, break down revenue into its component parts to reveal where your money goes and how much you actually keep.

Where each variable represents:

• Revenue = Total income from sales (also called top-line revenue or gross sales)
• COGS = Direct costs to produce or acquire the goods/services sold
• Gross Profit = Revenue minus only COGS (product-level profitability)
• Operating Expenses = Indirect business costs (rent, overhead, admin salaries, marketing)
• Net Profit = Revenue minus all costs (bottom-line profitability)

Step-by-Step Calculation Example

A small bakery has the following monthly financials: $45,000 revenue from bread, pastry, and cake sales. COGS is $18,000 (flour, sugar, butter, eggs, packaging, baker wages). Operating expenses total $15,000 (rent $4,000, utilities $800, front-of-house staff $6,000, marketing $1,200, insurance $500, equipment depreciation $500, supplies $2,000).

1. Calculate gross profit: $45,000 − $18,000 = $27,000
2. Calculate gross margin: ($27,000 / $45,000) × 100 = 60.0%
3. Calculate net profit: $27,000 − $15,000 = $12,000
4. Calculate net margin: ($12,000 / $45,000) × 100 = 26.7%

This bakery retains 60 cents of every revenue dollar after direct costs and 26.7 cents after all expenses. With a 26.7% net margin, the bakery is performing well above the restaurant industry average of 3-9%. The owner has room to reinvest in growth, absorb cost increases, or build cash reserves for equipment replacement.

The Revenue Waterfall

Think of revenue as a waterfall. The full amount enters at the top ($45,000). COGS takes the first cut ($18,000), leaving gross profit ($27,000). Operating expenses take the next cut ($15,000), leaving net profit ($12,000). This "waterfall" visualization shows exactly where each dollar goes: 40% to COGS, 33.3% to operating expenses, and 26.7% to profit. The pie chart in our calculator visualizes this same concept.

Practical Profit Examples

These real-world scenarios demonstrate how profit calculations apply to different types of businesses and decision-making situations.

E-Commerce Product Business

Rachel runs an online store selling eco-friendly water bottles. Monthly revenue is $85,000. COGS includes product cost ($25 per unit x 2,000 units = $50,000), shipping supplies ($3,000), and warehouse labor ($4,000) for a total of $57,000. Operating expenses include Shopify subscription ($300), advertising ($8,000), office rent ($1,500), her salary ($5,000), and miscellaneous ($1,200) for a total of $16,000. Gross profit is $28,000 (32.9% margin), and net profit is $12,000 (14.1% margin). Rachel identifies that COGS is 67% of revenue — high for e-commerce. By negotiating a 10% volume discount with her supplier, she could save $5,000 monthly, boosting net margin to 20%.

Professional Services Firm

David runs a small marketing agency with $30,000 in monthly revenue from client retainers. His COGS is $8,000 (freelance designers $5,000, stock photo subscriptions $500, software tools $2,500). Operating expenses are $12,000 (his salary $7,000, office co-working space $1,500, accounting software $200, liability insurance $300, professional development $500, miscellaneous $2,500). Gross profit is $22,000 (73.3% margin) and net profit is $10,000 (33.3% margin). David's high gross margin is typical for services businesses. His challenge is that revenue is capped by his time — to grow past $30,000/month, he needs to hire employees, which will increase COGS and reduce margins temporarily while building capacity.

Retail Store Analysis

The Chen family operates a hardware store with $120,000 in monthly revenue. COGS is $78,000 (wholesale cost of inventory sold). Operating expenses total $34,000 (rent $8,000, three employees $18,000, utilities $2,000, insurance $1,500, marketing $2,000, POS system $500, and supplies $2,000). Gross profit is $42,000 (35% margin) and net profit is $8,000 (6.7% margin). While 6.7% is modest, it is within the normal range for retail (2-5% average). The Chens notice that their top-selling category (power tools) has 45% gross margin while paint has only 25%. Shifting their product mix and marketing toward higher-margin categories could meaningfully improve overall profitability.

Startup Break-Even Analysis

Alex launched a subscription box service three months ago. Month 1: revenue $5,000, COGS $3,500, OPEX $8,000, net profit negative $6,500. Month 2: revenue $12,000, COGS $7,800, OPEX $8,500, net profit negative $4,300. Month 3: revenue $22,000, COGS $13,200, OPEX $9,000, net profit negative $200. Alex is approaching break-even at roughly $23,000 in monthly revenue. COGS as a percentage of revenue has been consistent at 60%, and operating expenses grow slowly. At month 4's projected $32,000 revenue, net profit should reach $3,800 (11.9% margin). Tracking the profit trajectory monthly helps Alex and his investors understand the path to profitability.

Profit Tips and Complete Business Guide

Maximizing profit requires a systematic approach to both revenue growth and cost management. These strategies are used by successful business owners across all industries to build sustainable, profitable operations.

Focus on Gross Margin First

Gross margin improvement has the most direct impact on profitability because every dollar saved in COGS flows directly to both gross and net profit. Start by analyzing your product or service costs line by line. Can you negotiate better rates with suppliers (many offer 2-10% discounts for larger orders or faster payment)? Can you reduce waste in production? Can you substitute a lower-cost material without sacrificing quality? Even a 3% reduction in COGS on $500,000 in annual sales adds $15,000 directly to your bottom line.

Know Your Most and Least Profitable Products

Not all products or services contribute equally to profit. Analyze margin by product line or service type to identify your best and worst performers. You may discover that a product generating 30% of revenue actually produces 50% of your profit, while another product generating 20% of revenue contributes only 5% of profit. Armed with this knowledge, you can focus marketing on high-margin offerings, improve or eliminate low-margin ones, and set appropriate sales incentives that drive profitable revenue rather than just top-line growth.

Manage Operating Expenses as a Percentage of Revenue

As your business grows, operating expenses should grow more slowly than revenue (this is called operating leverage). If revenue doubles but operating expenses less than double, your net margin improves. Track operating expenses as a percentage of revenue each month. If the percentage is climbing, investigate which expense categories are growing fastest. Common areas where expenses creep up include: software subscriptions you no longer use, marketing channels with declining returns, staffing levels that have not been optimized, and vendor contracts that have not been renegotiated. An annual audit of all recurring expenses often finds 5-10% in savings.

Use Scenario Analysis for Major Decisions

Before making major business decisions — hiring, expanding, launching a new product — model the profit impact using this calculator. Create three scenarios: conservative (modest revenue increase, full cost increase), expected (planned projections), and optimistic (best-case outcome). If the business remains profitable even in the conservative scenario, the decision is relatively safe. If profitability depends on the optimistic scenario, the risk may be too high. This disciplined approach prevents decisions that look good on the surface but erode margins.

Common Mistakes to Avoid

• Confusing revenue with profit. A business doing $1 million in revenue sounds impressive, but if COGS is $700,000 and operating expenses are $280,000, net profit is only $20,000 (2% margin). Revenue is vanity, profit is sanity. Always look at the bottom line, not just the top line.
• Ignoring COGS changes over time. Supplier prices, shipping costs, and material costs fluctuate. If you set prices based on costs from six months ago and those costs have risen 5%, your margin is silently eroding. Review COGS monthly and adjust prices if needed.
• Cutting costs that drive revenue. Reducing marketing spend or customer service to improve net margin can backfire if it reduces sales volume more than it saves. Before cutting any cost, estimate the revenue impact. A $5,000 monthly marketing expense that generates $25,000 in revenue is profitable even though eliminating it would reduce expenses.
• Not paying yourself as an operating expense. Many small business owners calculate profit without including their own salary. This inflates the apparent margin and hides the true cost of running the business. If you are working in the business, include a fair market salary for your role in operating expenses before calculating net profit.
• Using annual averages for seasonal businesses. If your business is seasonal, annual averages can mask months of losses. Calculate profit monthly. A business that makes $50,000 in December but loses $5,000 in July needs to plan cash flow differently than one that earns $3,750 evenly each month.