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 (selling price).

2. How Does the Calculator Work?

The calculator uses the profit margin formula:

Where:

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

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

3. Importance of Profit Margin Calculation

Details: Profit margin is crucial for understanding business profitability, pricing strategy effectiveness, and financial health. It helps in comparing performance across different products or time periods.

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, but generally 10-20% is considered good, while 5% is low. Some industries like software may have much higher margins.

Q2: What's the difference between profit margin and markup?
A: Markup is (Selling Price - Cost)/Cost, expressed as a percentage of cost, while profit margin is expressed as a percentage of selling price.

Q3: Can profit margin be negative?
A: Yes, if costs exceed selling price, resulting in a loss rather than profit.

Q4: How often should I calculate profit margin?
A: Regularly - for each product, at least quarterly for overall business, and whenever pricing or costs change significantly.

Q5: Does this work for service businesses?
A: Yes, where "cost" would be the cost to deliver the service (labor, materials, etc.).