1. What is Profit Margin?

Profit margin is a financial metric that shows what percentage of sales revenue turns into profit after accounting for the cost of goods sold. 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:

• Sales Revenue — Total income from sales
• Cost of Goods Sold — Direct costs attributable to production

Explanation: The formula calculates what portion of each dollar in revenue remains as profit after accounting for production costs.

3. Importance of Profit Margin

Details: Profit margin helps businesses evaluate pricing strategies, control costs, compare performance with industry peers, and make informed financial decisions. Higher margins generally indicate more profitable operations.

4. Using the Calculator

Tips: Enter sales revenue and cost of goods sold in dollars. Both values must be positive numbers, and revenue should be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What's a good profit margin?
A: This varies by industry. Generally, 10-20% is good, but some industries (like software) can have much higher margins while others (like grocery) operate on thin margins.

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

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 regularly (monthly or quarterly) to monitor financial health and spot trends.

Q5: Does higher revenue always mean higher profit margin?
A: Not necessarily. Higher sales might come from lower prices that reduce margins. Volume and margin must be balanced.