The formula (quick, transparent, and useful)

This calculator builds a simplified P&L using a structure that matches how many small businesses think. You enter Revenue, then we compute costs and profit using a few assumptions: Gross margin, Operating expense %, and Tax rate. “Other income” is optional (for example, interest income, affiliate revenue, or a one‑time refund). Finally, the scenario sliders let you test “what‑ifs” without changing your base inputs.

Gross margin is the percent of revenue you keep after direct costs. If gross margin is 60%, then COGS is 40% of revenue.

• COGS % = 100% − Gross Margin %
• COGS = Revenue × (COGS %)
• Gross Profit = Revenue − COGS

Operating expenses (OpEx) are costs that keep the business running — marketing, salaries, software, rent, accounting, insurance, customer support, and more. We estimate them as a percent of revenue, which is common for quick planning.

• Operating Expenses = Revenue × OpEx %
• Operating Profit = Gross Profit − Operating Expenses + Other Income

Taxes vary by country, entity type, deductions, credits, and timing. This tool uses a simple tax rate applied to positive operating profit. If operating profit is negative, we set taxes to zero (because losses typically don’t generate immediate income tax).

• Taxes = max(0, Operating Profit) × Tax Rate %
• Net Profit = Operating Profit − Taxes

Margins are the most shareable part of a P&L because they scale. A $2,000 profit can be great or terrible depending on revenue. That’s why we compute:

• Gross Margin = Gross Profit ÷ Revenue
• Operating Margin = Operating Profit ÷ Revenue
• Net Margin = Net Profit ÷ Revenue

The two scenario sliders adjust your base model without changing the base values you typed. Revenue change increases/decreases revenue by a percentage. Cost reduction decreases both COGS and OpEx by a percentage. That keeps the scenario simple and helps you see leverage quickly.

• Scenario Revenue = Revenue × (1 + Revenue Change %)
• Scenario COGS = COGS × (1 − Cost Reduction %)
• Scenario OpEx = OpEx × (1 − Cost Reduction %)

This is a snapshot, not full accounting. Real P&Ls can include depreciation, interest expense, payment processing fees, inventory timing, refunds, chargebacks, and more. That said, a simple P&L is incredibly powerful: it gives you a clear direction for what to improve next.

Three realistic P&L snapshots (and what they mean)

Examples help you learn the “shape” of healthy and unhealthy numbers. These are simplified, but they mirror the way many online and local businesses behave.

Revenue: $10,000/month, Gross margin: 80%, OpEx: 45%, Tax: 20%. COGS is low (mostly time + minor delivery costs). Marketing + admin are meaningful, but still leave profit.

• COGS = $2,000 → Gross profit = $8,000 (80%)
• OpEx = $4,500 → Operating profit = $3,500 (35%)
• Taxes ≈ $700 → Net profit ≈ $2,800 → Net margin ≈ 28%

Takeaway: A strong service business often has high gross margin. The main battle is managing OpEx — especially time, payroll, and customer acquisition costs.

Revenue: $50,000/month, Gross margin: 45%, OpEx: 35%, Tax: 20%. Here, product cost + shipping + ads can squeeze profit quickly.

• COGS = $27,500 → Gross profit = $22,500 (45%)
• OpEx = $17,500 → Operating profit = $5,000 (10%)
• Taxes ≈ $1,000 → Net profit ≈ $4,000 → Net margin ≈ 8%

Takeaway: An 8% net margin can still be a good business — but it’s sensitive. A small increase in ad costs, refunds, or shipping can erase profit. The best lever is improving gross margin through supplier negotiation, bundling, pricing tests, or reducing returns.

Revenue: $8,000/month, Gross margin: 70%, OpEx: 90%, Tax: 20%. The product has good margins, but operating expenses are too high for current revenue.

• COGS = $2,400 → Gross profit = $5,600 (70%)
• OpEx = $7,200 → Operating profit = −$1,600 (−20%)
• Taxes = $0 → Net profit = −$1,600 → Net margin = −20%

Takeaway: This is common in early stages. You can fix it in three ways: (1) grow revenue, (2) cut OpEx, or (3) increase gross margin. Use the scenario sliders to see which lever gets you to breakeven with the smallest change.

Breakeven is the point where operating profit hits zero. In this simplified model, breakeven happens when gross profit plus other income equals operating expenses. If your net margin is negative, your first milestone is usually: reach 0% net margin, then push to 5–10% for stability.

Frequently Asked Questions

• Is this a “real” income statement?

  It’s a simplified P&L snapshot. A real income statement includes more line items and accounting rules (accrual timing, depreciation, interest, inventory, etc.). This version is designed for fast planning and clarity.

• What should my gross margin be?

  It depends on your business. Many digital products and services can have 70–95% gross margin. Retail and e‑commerce often range from 25–60% depending on category. If your gross margin is low, pricing and COGS are usually the first levers.

• What is a “good” net margin?

  As a rough heuristic: negative = losing money, 0–5% = fragile, 5–15% = workable, 15%+ = strong. Some businesses run on thin margins but make it up in volume and repeat customers.

• Why are taxes zero when profit is negative?

  This tool applies a simple tax rate to positive operating profit only. In reality, losses can be carried forward or offset other income depending on rules. Always confirm taxes with a professional for your situation.

• How do the scenario sliders work?

  Revenue change adjusts revenue up or down. Cost reduction reduces both COGS and operating expenses by the same percent. It’s a “quick lever” model to show sensitivity, not a perfect operational simulation.

• What if I have fixed costs (rent, salaries) that don’t scale with revenue?

  Then OpEx as a percentage will change as revenue grows. A practical approach is to run this calculator twice: once for today, then again for a higher revenue target with a lower OpEx %. The difference often reveals the path to profitability.

• Can I use this for a business idea?

  Yes — it’s perfect for idea testing. Start with conservative assumptions: lower gross margin, higher OpEx, and a realistic tax rate. If the idea still looks profitable, you’re onto something.

How to improve your P&L (without “working harder”)

A P&L turns vague stress into specific levers. If you want a quick improvement, use this order: gross margin first, then OpEx, then taxes (because you only “fix” taxes by earning more profit).

• Raise prices slightly and measure conversion (A/B test if possible).
• Bundle offers to increase average order value.
• Negotiate supplier rates, shipping, or platform fees.
• Reduce refunds/returns with clearer expectations and better onboarding.

• Cut or cap the biggest variable expense (often ads or contractors).
• Automate repeat tasks (templates, SOPs, self‑serve support).
• Switch expensive tools to cheaper alternatives or annual plans.
• Track “cost per outcome” (cost per lead, cost per sale, cost per retained user).

• Find the smallest positive change that flips net profit above zero.
• Prioritize stable revenue (subscriptions, retainers, repeat buyers).
• Delay non‑essential spending until net margin is consistently positive.

Tip: Share your net margin and ask friends: “Would you raise price or cut costs first?” You’ll get surprisingly good ideas.