How to Calculate Profit Margin

If you’re self-employed trying to figure out whether your business is actually profitable, you’re not alone.

You’ve got clients coming in, money hitting your account, and maybe even a fancy spreadsheet... but when it comes to knowing how much you really get to keep? Crickets.

That’s where profit margin comes in. And no, it doesn’t have to be complicated.

Let’s break it down, Cashflowy style.

What Is Profit Margin, Really?

Think of profit margin as your business’s “keep” score. It tells you what percentage of your revenue is actually profit after expenses are paid.

In plain English:

You made $10,000 last month... but how much of that did you actually keep?

That’s what profit margin answers.

The Simple Profit Margin Formula

Here’s the formula:

Profit Margin (%) = (Net Profit ÷ Revenue) × 100

Let’s break it down with an example:

• You earned $10,000 from client projects

• You spent $4,000 on software, contractors, tools, and taxes

Net Profit = $10,000 – $4,000 = $6,000

Now plug that into the formula:

($6,000 ÷ $10,000) × 100 = 60% profit margin

That means you keep 60 cents of every dollar you earn. Not bad!

Gross vs. Net Profit Margin (Because Yes, There Are Two)

Just when you thought you had it... we’ve got two versions of profit margin to consider:

1. Gross Profit Margin

This looks at your revenue minus direct costs (like materials or labor tied to delivering your service).

2. Net Profit Margin (aka the Real MVP)

This factors in everything: rent, software, taxes, your Canva subscription, even that overpriced coworking latte.

If you’re a service provider, freelancer, or coach, net profit margin is usually your go-to.

What’s a “Good” Profit Margin?

This varies depending on your business model, but here’s a general benchmark:

If you're in the 30–60% range? You’re doing great.
If you’re below 20%? Time to take a peek at your pricing, expenses, or client mix.

Common Profit Margin Pitfalls (And How to Avoid Them)

Let’s keep it real. Here are a few things that can tank your margin—fast:

• Undercharging because you “just love what you do”

• Scope creep with no boundaries (hello, endless revisions)

• Spending like a CEO before your biz is ready
  
  

💡 Cashflowy Tip: Use our real-time profit insights to know exactly what you’re keeping, so you can make smart money moves (without guesswork).

Why Knowing Your Profit Margin Matters

Profit margin isn’t just a vanity metric. It helps you:

• Know when to raise your rates

• See if a project is worth your time

• Plan for taxes before April hits

• Finally pay yourself consistently

And maybe most importantly? It helps you stop winging it and start feeling in control of your money.

Want to Track Profit Margin Without the Math?

You don’t need a spreadsheet. You need a system.

Cashflowy automagically tracks your income, expenses and profit, so you always know where your money’s going (and how much is coming back).

✅ AI-powered categorization
✅ Instant profit insights
✅ Tax-ready reports (you’re welcome, future you)

👉Start your free trial today and stop guessing about your profit margin.