Methodology: Profit Margin Calculator

1. Scope

Converts revenue and cost inputs into gross margin, markup, and profit. It does not model variable versus fixed costs, fully-absorbed manufacturing overhead, tax, or currency effects — those belong to dedicated tools.

2. Inputs and outputs

Inputs

revenue number (currency)

Net revenue per unit or period.
cost number (currency)

Cost of goods sold, direct cost, or per-unit variable cost.
mode enum default: margin

margin | markup | price-from-margin.

Outputs

grossMargin

(revenue − cost) / revenue, expressed as a percentage.
markup

(revenue − cost) / cost, expressed as a percentage.
grossProfit

revenue − cost in currency terms.

Engine source: src/lib/profit-margin-calculator/engine.ts

3. Formula / scoring logic

gross_margin = (revenue - cost) / revenue
markup       = (revenue - cost) / cost
gross_profit = revenue - cost

4. Assumptions

Revenue and cost are entered in the same currency and time window.
Cost covers direct/variable cost only. Allocated overhead is the user's responsibility.
No tax, discount, or refund is netted out — compute those upstream.

5. Data sources

This tool relies on user inputs and standard arithmetic; no external benchmark data is bundled. When a question depends on an industry reference (for example, typical churn rates or hourly-wage medians), the linked adjacent tools cite their primary sources on their own methodology pages.

6. Known limitations

No benchmark layer: the tool does not judge whether the resulting margin is healthy for a given industry. Consult sector references (for example, NYU Stern's margin-by-industry dataset) separately.
Does not distinguish gross margin from contribution margin or net margin; the label reflects the formula above, not US-GAAP line-item definitions.
Rounding is display-only; internal math is double-precision.

7. Reproducibility

Input
revenue = 100, cost = 60, mode = margin.

Expected output
gross_margin = 40%, markup = 66.67%, gross_profit = 40.

8. Change log

2026-04-24 methodology page first published.