1. What is Profit Margin?

Profit margin is a financial metric that shows what percentage of sales has turned into profits. It measures how much out of every dollar of sales a company actually keeps in earnings.

2. How Does the Calculator Work?

The calculator uses the margin formula:

Where:

• \( Price \) — Selling price in USD
• \( Cost \) — Cost price in USD
• \( Margin \) — Profit margin percentage

Explanation: The formula calculates the percentage difference between the selling price and cost price relative to the selling price.

3. Importance of Margin Calculation

Details: Profit margin is crucial for business profitability analysis, pricing strategies, financial planning, and assessing operational efficiency. It helps businesses determine optimal pricing and identify areas for cost reduction.

4. Using the Calculator

Tips: Enter the selling price and cost price in USD. Both values must be positive numbers, and the selling price must be greater than the cost price for a valid margin calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is a good profit margin?
A: Good profit margins vary by industry, but generally 10-20% is considered good, while 5% is low and 20%+ is excellent.

Q2: What's the difference between margin and markup?
A: Margin is percentage of profit based on selling price, while markup is percentage added to cost price to determine selling price.

Q3: Can margin be negative?
A: Yes, if the cost exceeds the selling price, the margin becomes negative, indicating a loss on the sale.

Q4: How often should I calculate profit margins?
A: Regularly monitor margins - monthly for ongoing analysis, and always calculate for new products or pricing changes.

Q5: What factors affect profit margins?
A: Material costs, labor, overhead, competition, market demand, pricing strategy, and operational efficiency all impact margins.