What is a Profit Margin?
A profit margin is a measure of a company’s earnings (or profits) relative to its revenue. Profit margin indicates the profitability of a product, service, or business. It’s the percentage of revenue that’s left after all associated expenses have been deducted.This profit margin calculator will help you calculate the selling price and the gross profit margin for your products.
Types of Profit Margins
Two types of profit margin are most useful for business owners:
- Gross profit margin
- Net profit margin
Gross Profit Margin
The gross profit margin is a financial measure used to determine the financial health of a company, because it defines profit as all income that remains after accounting for the cost of goods sold (COGS). Calculating the gross profit margin helps a company determine pricing decisions
Gross profit margin formula:
Gross profit margin = gross profit ÷ total revenue
Gross Profit Percentage
Gross profit percentage is the margin earned (as a percentage) on a product or service after applying the total production cost to the revenue earned. The gross profit percentage is calculated by subtracting cost of goods sold from total revenues and dividing the difference by total revenues:
Gross profit percentage formula = (Total sales – Cost of goods sold) / Total sales * 100%