1. What is Profit Margin?

Profit Margin is a financial metric that shows what percentage of sales has turned into profit. It's calculated by finding the net profit as a percentage of the revenue.

2. How Does the Calculator Work?

The calculator uses the profit margin formula:

Where:

• Selling Price — The price at which the product is sold to customers
• Cost — The cost to produce or acquire the product

Explanation: The formula shows what percentage of the selling price is profit after accounting for the cost.

3. Importance of Profit Margin

Details: Profit margin is crucial for understanding business profitability, pricing strategies, and financial health. It helps compare performance across different businesses and industries.

4. Using the Calculator

Tips: Enter the selling price and cost in dollars. Both values must be positive numbers, and selling price must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What's a good profit margin?
A: This varies by industry. Generally, 10% is average, 20% is good, and 5% is low. Some industries like software may have much higher margins.

Q2: Can profit margin be negative?
A: Yes, if costs exceed selling price, the margin will be negative, indicating a loss on each sale.

Q3: How is this different from markup?
A: Markup is (Selling Price - Cost)/Cost, while profit margin is (Selling Price - Cost)/Selling Price.

Q4: Should I use gross or net profit margin?
A: This calculator shows gross profit margin. Net profit margin would also subtract operating expenses, taxes, etc.

Q5: How often should I calculate profit margin?
A: Regularly - monthly or quarterly for most businesses - to track financial performance over time.