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 Profit Margin formula:

Where:

• \( \text{Net Profit} \) — Total revenue minus all expenses (in dollars)
• \( \text{Revenue} \) — Total income from sales (in dollars)

Explanation: The formula calculates what portion of each dollar earned is actual profit after accounting for all costs.

3. Importance of Profit Margin Calculation

Details: Profit margin helps businesses assess pricing strategies, control costs, compare performance against competitors, and make informed financial decisions.

4. Using the Calculator

Tips: Enter net profit and revenue in dollars. Both values must be positive numbers, and revenue cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What's a good profit margin?
A: Varies by industry. Generally, 10% is average, 20% is good, and 5% is low. Service businesses often have higher margins than retailers.

Q2: What's the difference between gross and net profit margin?
A: Gross margin considers only cost of goods sold, while net margin includes all expenses (operating costs, taxes, interest, etc.).

Q3: Can profit margin be over 100%?
A: Yes, if costs are negative (unusual but possible with certain accounting situations like rebates or refunds).

Q4: Why might profit margin decrease?
A: Due to increased costs, price reductions, or a combination of both. It signals reduced profitability per sale.

Q5: How often should I calculate profit margin?
A: Businesses should track it monthly at minimum. High-growth companies may monitor it weekly or even daily.