1. What is Profit Margin?

Profit margin is a financial metric that shows what percentage of sales has turned into profit. It measures how much out of every dollar of sales a company actually keeps in earnings.

2. How Does the Calculator Work?

The calculator uses the profit margin formula:

Where:

• \( Sales \) — Total revenue from sales
• \( Cost \) — Total cost of goods sold

Explanation: The formula calculates the percentage of revenue that remains after accounting for the cost of goods sold.

3. Importance of Profit Margin

Details: Profit margin is a key indicator of a company's financial health and pricing strategy. It helps businesses understand their profitability and make informed decisions about pricing, cost control, and growth strategies.

4. Using the Calculator

Tips: Enter sales and cost amounts in dollars. Sales must be greater than or equal to cost. The calculator will display the profit margin as a percentage.

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. Service businesses often have higher margins than retailers.

Q2: What's the difference between gross and net profit margin?
A: Gross profit margin (calculated here) considers only cost of goods sold. Net profit margin accounts for all expenses including operating costs, taxes, and interest.

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

Q4: How can I improve my profit margin?
A: Either increase prices (without losing sales volume) or reduce production costs through efficiency or cheaper materials.

Q5: Should I use total revenue or net sales?
A: Use net sales (after returns/discounts) for the most accurate profit margin calculation.