1. What is Profit Margin?

Profit Margin is a financial metric that shows what percentage of revenue has turned into profit. It's a key indicator of a company's financial health and pricing strategy.

2. How Does the Calculator Work?

The calculator uses the profit margin formula:

Where:

• \( \text{Net Profit} \) — Total revenue minus all expenses (in dollars)
• \( \text{Revenue} \) — Total income from sales (in dollars)

Explanation: The formula calculates what portion of each dollar earned by the company translates into profits.

3. Importance of Profit Margin

Details: Profit margin helps businesses assess their financial performance, compare with industry standards, make pricing decisions, and identify areas for cost reduction.

4. Using the Calculator

Tips: Enter net profit and revenue in dollars. Both values must be positive numbers (revenue cannot be zero).

5. Frequently Asked Questions (FAQ)

Q1: What's a good profit margin?
A: It varies by industry, but generally 10% is average, 20% is good, and 5% is low. Compare with competitors in your sector.

Q2: What's the difference between gross and net profit margin?
A: Gross margin considers only cost of goods sold, while net margin includes all expenses (operating costs, taxes, interest, etc.).

Q3: Can profit margin be over 100%?
A: No, since net profit can't exceed revenue. If you see >100%, check for errors in accounting.

Q4: How often should I calculate profit margin?
A: Businesses should track it monthly at minimum. Seasonal businesses should compare year-over-year.

Q5: Why is my profit margin decreasing?
A: Possible reasons include rising costs, price competition, inefficient operations, or changing product mix.