How To Calculate Profit Margin

Last Updated on August 16, 2023 by Jake Sheridan

In this tutorial, you will learn how to calculate the profit margin in Google Sheets.

How To Calculate Profit Margin in Google Sheets

The profit margin is an important financial metric that businesses use to measure the overall profitability of their business operations.

There are two main types of profit margins: gross and net. We can calculate the gross margin by dividing the gross profit by the total revenue and expressing it as a percentage.

Similarly, we can find the net profit margin by dividing the net profit by total revenue.

For example, if a company has a net profit of $500 and its total revenue is $2500, its profit margin is $500/$2500 = 0.2 or 20%. If the same company has a gross profit of $2000, then we can say that the gross margin is $2000/$2500 = 0.8 or 80%.

A high-profit margin indicates that a company is successfully managing its operations, while a low margin could indicate that there is an issue with the amount spent operating the business.

In this guide, we will show you how to calculate both types of profit margins in a Google Sheets spreadsheet.

How To Determine the Profit Margin in Google Sheets

Here’s how to determine the profit margin in Google Sheets.

Step 1

First, we will need to know the company’s revenue and cost of goods sold. The revenue refers to the total amount of money your business receives in a given period. The cost of goods sold is the total amount of expenses that are directly contributing to producing the sold goods.

In our example, our online business earned a total of $10,000 in a single year after spending $4,000 on productions costs.

Step 2

We can compute the gross profit by subtracting the cost of goods sold from the overall revenue.

Step 3

We can find the net income of the business by subtracting all other expenses from the gross profit. These expenses can include marketing costs, administrative expenses, and taxes.

Step 4

To find the gross profit margin, we must divide the gross profit by the total revenue.

We can convert the decimal result to a percentage by clicking on the Format as percentage shortcut in the toolbar.

Step 5

We can find the net profit margin by dividing the net income by the total revenue.

Summary

This guide should be everything you need to calculate profit margin in Google Sheets.

You may make a copy of this example spreadsheet to test it out on your own.