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Profit Margin Calculator

Calculate profit margin, markup, and profit from revenue and cost. Understand the difference between margin and markup.

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Understanding Profit Margin

Profit margin shows what percentage of each dollar in revenue is actual profit. It's a key indicator of business health.

Margin vs Markup

These are often confused but measure profit differently:

  • Margin: Profit ÷ Revenue (what percentage of price is profit)
  • Markup: Profit ÷ Cost (how much you add to cost)

Example

If you sell an item for $100 that costs $60:

  • Profit: $40
  • Margin: $40 ÷ $100 = 40%
  • Markup: $40 ÷ $60 = 66.67%

Improving Profit Margins

  • Raise prices: If you provide value, customers will pay more
  • Reduce COGS: Negotiate with suppliers, buy in bulk
  • Cut overhead: Reduce rent, utilities, unnecessary expenses
  • Increase volume: Spread fixed costs over more units

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Frequently Asked Questions

What is profit margin?

Profit margin is the percentage of revenue that remains as profit after costs. Formula: (Revenue - Cost) / Revenue × 100

What is the difference between margin and markup?

Margin is profit as a percentage of selling price. Markup is profit as a percentage of cost. They measure the same profit differently.

What is a good profit margin?

It varies by industry. Retail: 2-5%, Manufacturing: 5-10%, Software: 20-40%, Services: 15-30%.

How do I increase profit margin?

Either increase prices (raise revenue) or reduce costs (lower expenses). Focus on value to justify higher prices.