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 total expenses
• \( \text{Revenue} \) — Total income from sales

Explanation: The formula calculates what portion of each dollar earned is actual profit after accounting for all costs.

3. Importance of Profit Margin

Details: Profit margin helps businesses assess pricing strategies, control costs, and compare performance against industry benchmarks. It's essential for financial planning and investment decisions.

4. Using the Calculator

Tips: Enter net profit and revenue in dollars. Both values must be positive numbers, and revenue must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What's a good profit margin?
A: This varies by industry, but generally 10-20% is considered good, while 5% is low and 20%+ is excellent.

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, taxes, interest, etc.).

Q3: Can profit margin be negative?
A: Yes, if expenses exceed revenue, resulting in a net loss rather than profit.

Q4: How often should I calculate profit margin?
A: Businesses should track it monthly to monitor financial health and spot trends.

Q5: Does higher revenue always mean higher profit margin?
A: Not necessarily. Increased revenue with proportionally higher costs can actually decrease profit margin.