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:

• \( \text{Revenue} \) — Total income from sales ($)
• \( \text{Cost} \) — Total costs associated with sales ($)

Explanation: The formula calculates what portion of each dollar in revenue remains as 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: Varies by industry, but generally 10% is average, 20% is good, and 5% is low. Service businesses often have higher margins than manufacturers.

Q2: What's the difference between gross and net margin?
A: This calculator shows gross margin. Net margin further subtracts operating expenses, taxes, and interest.

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: Businesses should track margins monthly at minimum, or per product/project for detailed analysis.

Q5: Why is my margin negative?
A: Negative margin means costs exceed revenue - you're losing money on each sale. This is unsustainable.