Mastering Profitability with the Margin Calculator
Our Margin Calculator simplifies complex pricing decisions, helping you understand and optimize your gross profit margin.
What is Margin?
In business, margin (specifically gross profit margin) is the percentage of revenue left after subtracting the cost of goods sold (COGS). It's a key indicator of a company's financial health and pricing efficiency. A higher margin means more profit per sale.
Understanding your margin is crucial for setting effective prices, evaluating product profitability, and making informed business decisions.
How Margin is Calculated
The calculation of margin involves three core components:
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Cost Price (Cost of Goods Sold - COGS)The total cost incurred to produce or acquire a product or service.
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Selling Price (Revenue)The price at which a product or service is sold to the customer.
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Gross ProfitThe difference between the Selling Price and the Cost Price.
The formula used for Gross Profit Margin is:
$$Margin = \frac{(Selling\ Price - Cost\ Price)}{Selling\ Price} \times 100$$
Alternatively, the Gross Profit can be calculated as:
$$Gross\ Profit = Selling\ Price - Cost\ Price$$
Margin vs. Markup: What's the Difference?
While often confused, margin and markup are distinct concepts:
- Margin is based on the selling price. It tells you what percentage of your sales revenue is profit. For example, a 25% margin means that 25% of your selling price is gross profit.
- Markup is based on the cost price. It tells you how much you increase the cost to arrive at the selling price. For example, a 50% markup means you add 50% of the cost to the cost to get the selling price.
Understanding this distinction is critical for accurate pricing and financial analysis.