1. What is Profit Margin?

Profit Margin is a financial metric that shows what percentage of sales has turned into profit. It's calculated by finding the net profit as a percentage of the revenue (selling price).

2. How Does the Calculator Work?

The calculator uses the profit margin formula:

Where:

• \( \text{Selling Price} \) — Final price item is sold for (in dollars)
• \( \text{Cost} \) — Cost to produce or acquire the item (in dollars)

Explanation: The formula shows what percentage of the selling price is actual profit after accounting for the cost.

3. Importance of Profit Margin Calculation

Details: Profit margin helps businesses determine pricing strategies, evaluate product profitability, and make decisions about production and sales.

4. Using the Calculator

Tips: Enter both selling price and cost in dollars. Selling price must be greater than or equal to cost. Values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's a good profit margin percentage?
A: This varies by industry, but generally 10-20% is considered good, while 5% is low and 30%+ is excellent.

Q2: How is this different from markup?
A: Markup is (Selling Price - Cost)/Cost, showing how much you've increased price over cost, while margin shows profit as percentage of selling price.

Q3: Can profit margin be negative?
A: Yes, if cost exceeds selling price, but this indicates you're losing money on each sale.

Q4: Should I use gross or net profit margin?
A: This calculator shows gross profit margin. Net profit margin would subtract additional expenses like overhead.

Q5: How often should I calculate profit margin?
A: Regularly, especially when changing prices or costs, to ensure profitability is maintained.