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:

• Net Profit — Total revenue minus all expenses
• Revenue — Total income from sales before any expenses

Explanation: The formula calculates what portion of each dollar of revenue remains as profit after all expenses are paid.

3. Importance of Profit Margin

Details: Profit margin helps businesses assess pricing strategies, control costs, and compare performance against industry benchmarks. It's crucial for investors evaluating company profitability.

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 operating expenses, taxes, and interest.

Q3: Can profit margin be over 100%?
A: Only in rare cases where net profit exceeds revenue (e.g., one-time accounting adjustments). Normally ranges between 0-100%.

Q4: How often should I calculate profit margin?
A: Businesses should track it monthly. Investors should review it quarterly with financial statements.

Q5: Why does profit margin matter for startups?
A: It shows whether the business model is sustainable and if scaling will lead to profitability.