How To Calculate Profit and Profit Margin in Microsoft Excel
Updated February 3, 2023
One way to measure the performance and health of a business is to calculate and monitor its profits and profit margin. If you perform these calculations regularly, you may find it helpful to use spreadsheet software like Microsoft Excel to make your processes more efficient. Learning how to create tables and input formulas enables you to perform calculations automatically, helping you save time and effort. In this article, we discuss the concepts of profit and profit margin and how to calculate them using the Microsoft Excel program, including several tips and an example for additional guidance.
Why would you calculate profit and profit margin in Excel?
Microsoft Excel is a spreadsheet program that individuals can use to document and analyze data. Users create workbooks made up of columns, rows and individual cells. Depending on the users' needs, they can input words, phrases or numerical data into each cell.
Individuals and businesses use Microsoft Excel to calculate profit and profit margin to make this process more efficient. Calculating these metrics is often a simple bookkeeping task that helps individuals track the flow of money into and out of the business. Microsoft Excel offers several benefits when performing these calculations, including:
Excel allows users to input formulas in cells to calculate the value of a cell or range of cells. You can find many pre-existing formulas in Excel, called functions, including both simple and complex options. For example, if cell A1 contains the value 32, cell B1 contains the value "45" and cell C1 contains the value "60," you can calculate the average of these three cells automatically using the MEAN function.
In this scenario, you can type or choose the formula "=(A1,B1,C1)" in cell D1. Rather than adding these three values up and dividing them by three yourself, the program performs and displays the calculation. If you have several rows of data that you need to calculate average of, you can then drag the formula from cell D1 to the cells below it. Again, the program calculates and displays the results without you having to perform any calculations manually.
Because you're automating the calculations, it helps you save time because you're not performing this process manually. For example, Microsoft Excel can help you if you're trying to determine the profit and profit margin of a large data set of items. Rather than going through each line of the data set yourself and performing the calculations, you can input the formula and have the program populate the data in seconds.
Helps reduce errors
Performing calculations may create some risk for human error. You can use the Microsoft Excel and other spreadsheet programs to help reduce this risk using the predefined functions. Keep in mind that the calculations are only as accurate as the inputted data. Consider double-checking data and calculations to ensure their accuracy before submitting reports or making presentations.
How to calculate profit in Excel
Here are several steps you can follow to calculate profit in Excel:
1. Open Microsoft Excel
If you already have a workbook with data, you can go to your saved files and open it in Microsoft Excel. Otherwise, open the Microsoft Excel program and choose the "New blank workbook" option to create a new file. You can name the file according to your preferences.
2. Create a table
Now that you've created or opened your workbook, you can create a table with the data required to calculate profit. The table you create can contain four or five columns and use the following headers:
Column A is titled "Item"
Column B is titled "Sale price"
Column C is titled "Cost"
Column D is titled "Profit"
Column E is titled "Profit margin"
You can format the headers according to your preferences. For example, you may consider centering the headers and using a bold font to help differentiate them from the data in the cells below. Microsoft Excel also allows you to use text wrapping or adjust the size of your cells as needed.
3. Fill the table with your available data
Now that you've set up your table, you can add the relevant data for columns A, B and C. Each cell in column A represents a separate item, and you can use their official name to differentiate them. In column B, input the sale price of the corresponding item in column A. For example, if you sell the item in cell A2 for $15, put 15 in cell B2. In column C, input the cost of each product. If your business purchased the item in cell A2 for $6, put 6 in cell C2.
4. Input the profit formula
Next, calculate the profit of your items by inputting the profit formula in the "Profit" column. For example, column D represents your profit column, with the title located in cell D1. To determine profit, you subtract the cost of a product from its sale price. In this scenario, you'd type "=(B2-C2)" in cell D2. Here's an example of how the table might look during this step:
As you type the cells in the formula, the actual cells get highlighted. Hit enter when you've finished typing. Rather than the formula appearing in cell D2, the difference between the item's sale price and cost populates. Using the example above, cell D2 would contain "$175.00." To perform the profit formula for each cell in column D, click on the cell with the formula to highlight it. Next, click the small square on the bottom-right corner of the cell and drag it downward until you've highlighted all the cells in the column that require calculations. The data inputs automatically using the formula.
5. Input the profit margin formula in the final column
Once you've inputted the profit data for all your available cells, you can input the profit margin formula under the final column in your table. To calculate profit margin, you subtract the sale price from the profit discovered in the previous step, then multiply it by 100 to produce a percentage. In this scenario, you'd type "=(D2/B2)*100." Here's an example of how the table might look during this step:
Again, once you hit enter, the inputted formula calculates and populates the result in the cell. Using the example above, cell E2 under "Profit margin" would contain "70." Drag this formula downward to apply it to the rest of the cells in the column.
Read more: How To Calculate a Profit Margin
Here's an example of how a business might use Microsoft Excel to calculate profit and profit margin:
Lucia sells several types of decor items in her shop and wants to determine the profit and profit margin of these products. She creates a table using her available data and inputs the appropriate formulas to calculate the results:
Tips for measuring profit in Excel
Here's some helpful advice you can use when measuring profit using this spreadsheet program:
Create and use templates
If you need to calculate profit and profit margin regularly, you can save templates in Microsoft Excel. After inputting the data and appropriate formulas, save the document as an Excel workbook. Close and re-open the workbook and delete the inputted data, though you can leave the headers and formulas. Next, click on "File" followed by "Export" and choose the "Change File Type" option.
Pick the "Template" option from the list and then "Save as" and name the file according to your preferences. Once your template is saved, you can use it as a profit calculator to calculate your profits and profit margins as needed. You may also find resources online that allow you to download profit calculator and other helpful spreadsheet templates.
Use the "Number Format" tool
Within Microsoft Excel, there's a "Number Format" tool with several options to choose from to format numerical data. You can use this tool to format your data properly when calculating profit and profit margin. For example, you can highlight the data within the "sales price," "cost" and "profit" margins and choose the "Currency" option. This option formats the data with the correct currency symbol and decimal places.
As mentioned, you can include "*100" in your formula for profit margin to turn create a percentage result. With the "Number Format" tool, you can remove "*100" from your formula and instead highlight the results and choose the "Percentage" option. This option turns your results into their proper percentages. For example, if your profit margin result is 0.6, formatting it as a percentage displays it as 60%.
Examine other profit formulas
There are several other types of profit you can track and calculate using Microsoft Excel. Net profit represents the total revenue after subtracting all operating costs, taxes, interest and depreciation. Sometimes called net income, this measurement can help assess an organization's overall profitability and the effectiveness of its management. When calculating net profit in Excel, you need the following information:
You can calculate net profit by subtract COGS, operational expenses, interest expenses and taxes paid from your revenue, then subtracting the result by the revenue. Operating profit represents another type of profit for businesses to calculate and review. It represents a business' total earnings from its core operations before calculating taxes, interest charges and other expenses. Businesses typically display the result as a percentage, showing the amount of revenue gained from core functions versus money spent to maintain operations. When calculating operating profit in Excel, you need the following information:
Selling and distribution expenses
Once you have this data inputted into Excel, you can determine operating revenue by subtracting operating expenses, COGS and selling and distribution expenses from revenue.
Please note that none of the companies mentioned in this article are affiliated with Indeed.
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