1. What is Profit Margin?

Definition: Profit margin is a financial metric that shows what percentage of sales revenue turns into profit after accounting for the cost of goods sold.

Purpose: It helps businesses evaluate their pricing strategies, cost control, and overall financial health.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• Sales Revenue — Total income from sales
• Cost of Goods Sold (COGS) — Direct costs attributable to production
• Profit Margin % — Percentage of revenue that represents profit

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

3. Importance of Profit Margin

Details: Profit margin is a key indicator of business efficiency and pricing strategy. Higher margins generally indicate better financial health and pricing power.

4. Using the Calculator

Tips: Enter your total sales revenue and cost of goods sold in dollars. Both values must be positive numbers, and revenue must be greater than zero.

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 20%+ is excellent.

Q2: Can profit margin be negative?
A: Yes, if costs exceed revenue, indicating the business is losing money on each sale.

Q3: What's the difference between gross and net profit margin?
A: This calculator shows gross margin. Net margin would subtract all expenses (not just COGS) from revenue.

Q4: How can I improve my profit margin?
A: Either increase prices (if market allows) or reduce production costs through efficiency gains.

Q5: Should I include taxes in COGS?
A: No, COGS should only include direct production costs like materials and direct labor.