What is Profit Margin?
In its simplest terms, profit margin represents the percentage of sales that has turned into profit. For example, if your company has 20% profit margin, that means for every $1.00 of sales generated, you have a profit of $0.20. Generally, profit margin tells you how profitable your pricing is. A low-profit margin means you have very little room for error and any unexpected problems, like a sudden increase in the price of raw materials or shipping, could spell disaster. A high-profit margin indicates a lot more breathing room, however, it is always in your best interest to look for improvements and fix inefficiencies because that usually equates to a healthier bottom line.
Our profit margin calculator can give you your Gross Profit Margin – that is, your profit (revenue minus the cost of goods) divided by your revenue. Or, if you factor in additional costs, such as rent, employee wages, and taxes, the profit margin calculator can also give you your Net Profit Margin. Conversely, if you have targeted profit margin or revenue goals, the calculator can give you a target cost of goods and other expenses.
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How to Calculate Profit Margin
- Determine your COGS (cost of goods sold). For example $30
- Determine your revenue (how much you sell these goods for, for example, $50)
- Calculate the gross profit by subtracting the cost from the revenue. $50 – $30 = $20
- Divide gross profit by revenue: $20 / $50 = 0.4.
- Express it as percentages: 0.4 * 100 = 40%.
- This is how you calculate profit margin… or simply use our gross margin calculator!
Use the Profit Margin calculator xendoo® developed just for you and see what is possible with your business.
Gross Margin Formula
The formula for gross margin percentage is as follows:
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The Profit Margin Calculator
This margin calculator will be your best friend if you want to find out an item’s revenue, assuming you know its cost and your desired profit margin percentage.