Business profitability calculator
Business profitability summarizes gross margin, net margin, ROI, and break-even in one panel. Use it to check whether the model covers costs and returns capital before you scale or cut prices.
With $500,000 revenue, $200,000 COGS, $150,000 operating expenses, and $300,000 investment:
- Gross profit: $300,000
- Gross margin: 60%
- Net profit: $150,000
- Net margin: 30%
- ROI: 50%
- Break-even: $250,000
Formulas
Gross margin (%) = (Revenue − COGS) / Revenue × 100
Net margin (%) = (Revenue − COGS − Operating expenses) / Revenue × 100
ROI (%) = Net profit / Initial investment × 100
Break-even = Operating expenses / (1 − COGS / Revenue)
Here COGS is treated as variable cost and operating expenses as fixed cost for the break-even estimate. Reclassify mixed costs with your accountant when needed.
Step-by-step example (defaults)
- Revenue = $500,000
- COGS = $200,000 → gross profit $300,000 → gross margin 60%
- Operating expenses = $150,000 → net profit $150,000 → net margin 30%
- Investment = $300,000 → ROI 50%
- Break-even = 150,000 / (1 − 0.4) = $250,000
Scenario table (same engine logic)
Values rounded to 2 decimals like the calculator.
| Revenue | COGS | Opex | Investment | Gross margin | Net margin | ROI | Break-even |
|---|---|---|---|---|---|---|---|
| $500,000 | $200,000 | $150,000 | $300,000 | 60% | 30% | 50% | $250,000.00 |
| $100,000 | $40,000 | $30,000 | $80,000 | 60% | 30% | 37.5% | $50,000.00 |
| $250,000 | $100,000 | $80,000 | $150,000 | 60% | 28% | 46.67% | $133,333.33 |
| $1,000,000 | $600,000 | $250,000 | $500,000 | 40% | 15% | 30% | $625,000.00 |
| $75,000 | $45,000 | $35,000 | $50,000 | 40% | -6.67% | -10% | $87,500.00 |
How to read margins and ROI
| Metric | Short formula | Default example | What to watch |
|---|---|---|---|
| Gross margin | (Revenue − COGS) / Revenue | 60% | Price vs direct cost |
| Net margin | Net profit / Revenue | 30% | Health after opex |
| ROI | Net profit / Investment | 50% | Return on capital |
| Break-even | Fixed / (1 − COGS/Revenue) | $250,000 | Minimum sales with no loss |
Orientative benchmarks (not legal targets)
| Business type | Typical net margin | Note |
|---|---|---|
| Restaurants | 3–9% | High opex and waste |
| Retail | 2–5% | Volume and turnover matter more |
| Professional services | 15–25% | Lower COGS, more time |
| Software / digital | 15–40% | Scales after fixed costs |
Results are pre-tax. Income tax and other levies reduce real net profit. Treat this as an estimate and confirm with your accountant.
When to use it
- Before cutting prices or launching a product.
- When opex grows faster than sales.
- Alongside profit margin, break-even point, ROI, sale price with margin and VAT, and payback period.
Common mistakes
- Mixing up margin, markup, and ROI.
- Putting variable spend into “fixed” costs and distorting break-even.
- Treating the default ROI as automatically annualized.
- Looking only at revenue while ignoring the 70% cost-to-revenue ratio in the default case.
FAQ
It depends on the industry. Restaurants often sit at 3–9%, retail 2–5%, services 15–25%, and software 15–40%. With this calculator’s defaults, net margin is 30% on $500,000 revenue.
Net profit $150,000 ÷ investment $300,000 × 100 = 50%. Change investment or opex and ROI updates immediately.
Net profit is a loss versus invested capital. In the scenario table, $75,000 revenue shows ROI -10% and net margin -6.67%.
It is the minimum revenue to avoid a loss under the default structure. Below $250,000 the example business runs red even with a positive gross margin.
Monthly or at least quarterly. Compare like periods so seasonality does not distort the trend.
Profitability measures profit generation; liquidity measures cash available for short-term obligations. You can show a 30% net margin and still struggle if customers pay late.
This tool is pre-tax. Subtract income tax and other charges from net profit for a fuller picture.