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:

• \( Revenue \) — Total income from sales
• \( Cost \) — Total cost of goods sold

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

3. Importance of Profit Margin

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

4. Using the Calculator

Tips: Enter revenue and cost in dollars. Both values must be positive numbers, and revenue must be greater than zero for a valid calculation.

5. Frequently Asked Questions (FAQ)

Q1: What's a good profit margin?
A: It varies by industry. Generally, 10% is average, 20% is good, and 5% is low. Service businesses often have higher margins than retailers.

Q2: What's the difference between gross and net profit margin?
A: Gross margin (calculated here) considers only cost of goods sold. Net margin includes all expenses (taxes, salaries, etc.).

Q3: Can profit margin be negative?
A: Yes, if costs exceed revenue. This indicates the business is losing money on each sale.

Q4: How often should I calculate profit margin?
A: Businesses should track it monthly at minimum. More frequent tracking helps identify trends quickly.

Q5: Does higher revenue always mean higher profit?
A: Not necessarily. If costs increase proportionally more than revenue, profit margin can decrease even as revenue grows.