1. What is Profit Margin?

Profit Margin is a financial metric that shows what percentage of revenue has turned into profit. It's a key indicator of a company's financial health and pricing strategy.

2. How Does the Calculator Work?

The calculator uses the margin formula:

Where:

• \( Revenue \) — Total income from sales (in dollars)
• \( Cost \) — Total costs associated with producing goods/services (in dollars)

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

3. Importance of Margin Calculation

Details: Profit margin helps businesses evaluate pricing strategies, control costs, and compare performance against industry benchmarks. It's essential for financial planning and investment decisions.

4. Using the Calculator

Tips: Enter revenue and cost in dollars. Both values must be positive numbers, with revenue greater than zero for meaningful results.

5. Frequently Asked Questions (FAQ)

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

Q2: What's the difference between gross and net margin?
A: This calculator shows gross margin. Net margin would subtract all expenses (not just cost of goods) and taxes.

Q3: Can margin be over 100%?
A: No, since cost can't be negative in this calculation, maximum margin is 100% (when cost is zero).

Q4: How often should I calculate margin?
A: Regular calculation (monthly/quarterly) helps track business performance and spot trends.

Q5: What if my margin is negative?
A: A negative margin means costs exceed revenue - the business is losing money on each sale.