Margin calculator will always be helpful regarding calculate an item’s revenue by assuming the cost of product is already known and desired profit margin percentage as well. Even that, it calculates the main variables of the sale process as profit margin, revenue, costs of stuff you sold, and profit by using other given values. As by using margin calculator, you can find out profit margin which determines the health of any company.
Profit Margin Calculator
Now let us take a look at how does a profit margin calculator work?
- Take the cost of good - which you have sold- e.g. $30
- Take the revenue – how much you have sold out that item for- e.g. $50
- Find out the gross profit, Gross profit = revenue – cost =$50 - $30 = $20, After that divide this result value by revenue $20 / $50 = 0.4
- By expressing it as a percentage, it will be 0.4 * 100 = 40%
Thus the profit margin is 40%
Gross Margin Calculator
Now we will discuss about the working of gross margin calculator. Let us start.
Gross margin calculator works on the following formula:
Gross margin = 100 * profit / revenue (expressed in percentage)
As profit equation is: profit = revenue – cost
By putting profit equation into grass margin, as alternative margin formula will be:
Margin = 100 * (revenue – cost) / revenue
Formula to find out revenue:
Revenue = 100 * profit / margin
Finally, costs = revenue – margin * revenue / 100
Difference between Margin and Markup
There is a slightly important difference between margin and markup. Margin also known as gross margin is the ratio of profit to the sales while markup is the ratio of profit to the purchase price. So the gross margin is sales minus the cost of goods sold.
Markup = [(Price - Cost) / Cost] * 100
Margin = gross profit / revenue * 100
Note: calculation will be in percentage
Let's see an example if the cost of a product is $1 and we sell it for $2 which will be its revenue then markup will be 100%, but the profit margin just be 50%. Remember, margin is always less than 100 percent, but markups can be 200 percent or more than it even it might be 500 percent or 10,000 percent, which will be dependent upon the price and the total cost of the product.
For a layman, when they are dealing with prices (numbers) not percentages, profit will be known as margin or markup.
Now here I will define some terminology to make them clear for business men.
Profit is the most important source of finance which returns for taking risk in business by measuring the success of investment.
Margin is the difference between the cost to get items and selling price.
If we want to know about good margin that will vary from industry to industry, but as a general rule of thumb, an average margin is considered almost 10% net profit margin and a 20% margin is considered good likewise more than 20 will be considered high and a 5% margin is low.
The term true profit margin is the measurement of profitability at a given point of time. Total price (revenue) is the amount generated from sales.
True profit % = net income / revenue * 100