1. What is a 20% Profit Margin?

A 20% profit margin means that 20% of the selling price is profit. For every dollar of revenue, $0.20 is profit and $0.80 covers the cost. This is different from a 20% markup which adds 20% to the cost.

2. How Does the Calculator Work?

The calculator uses the profit margin formula:

For a 20% margin:

• Cost — Your product cost in dollars
• 1 - 0.20 = 0.80 — The cost portion of the selling price
• Selling Price — Price needed to achieve 20% profit margin

Example: If your cost is $80, the selling price would be $100 ($80/0.80), resulting in $20 profit (20% of $100).

3. Importance of Profit Margin Calculation

Details: Proper margin calculation ensures profitability, helps with pricing strategy, and maintains financial health of a business. A 20% margin is common in many industries.

4. Using the Calculator

Tips: Enter your product cost in dollars (must be greater than 0). The calculator will show the selling price needed to achieve a 20% profit margin.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between margin and markup?
A: Margin is profit as percentage of selling price, while markup is profit as percentage of cost. 20% margin ≠ 20% markup.

Q2: How do I convert markup to margin?
A: Margin = Markup / (1 + Markup). For 20% markup (0.20), margin = 0.20/1.20 = 16.67%.

Q3: Is 20% margin good for my business?
A: Depends on your industry. Retail typically has 2-5% margins, while software can have 80%+ margins.

Q4: Should I use margin or markup for pricing?
A: Margin is generally preferred as it directly relates to profitability as percentage of revenue.

Q5: How does volume affect margin calculations?
A: Higher volume businesses can often operate with lower margins, while low volume businesses need higher margins.