Do you want to learn How to Calculate Profit Margin, then follow this article for step by step explanation. Profit Margin is the most widely used term in Corporate Finance.
The three major profit margin metrics are Gross Profit Margin, Net Profit Margin, and Operating Profit Margin.
How To Calculate Profit Margin
First Find out your Cost of Goods Sold(COGS).
Next, Find out your Revenue
Next, Calculate Gross Profit Margin
Next, divide Gross Profit by Revenue
Next, Convert it to Percentage
How to Calculate Gross Profit Margin
Gross Profit Margin is calculated to profit as all income that remains after accounting for the Cost of Goods Sold(COGS).
COGS include all expenses associated with the production or manufacture of items like Raw Material, Wages for labor, equipment and also included Taxes, Operating cost, etc.
Formula For Gross Profit Margin:- (Net Sales-COGS)/Net Sales
How to Calculate Operating Profit Margin
Operating Profit Margin is calculated to operate, administrative and sales expenses necessary to run the business on a daily basis.
Formula for Operating Profit Margin:-(Operating Income/Revenue)*100
Revenue is the income you earn by selling your products and services.
How to Calculate Net Profit Margin
Net Profit Margin is calculated to the total amount of revenue left over after all expenses and additional income.
Formula for Net Profit Margin:-(Net Income/Revenue)*100
Profit Margin Example
Let’s say XYZ company COGS is $100, Revenue is $150. Find the Profit Margin?
Net Profit Margin=(Net Income/Revenue)*100
What is a Good Profit Margin
Make Sure your Profit Margin in Postive otherwise you losing money. There is no Fix for Good Profit Margin. It depends on your Business. But In General 5% net Profit Margin is Poor, 10% Profit Margin is Average and More than 20% is Good Profit Margin.
Why is net profit margin important
Net Profit Margin final Profit of Sale, so It is important to know, is your Product or Service Generates enough Profit.
Is net profit margin before or after-tax
Net profit margin is the percentage of revenue remaining, after all, operating Cost, interest, taxes, Raw Material.
What if net profit margin is negative
If Net Profit Margin is Negative that means whatever money you make from selling your products or services is not enough to cover the cost of making or selling those products or services. In Simple Word, Your Business is in Loss.
What is the difference between profit and profit margin
Profit is Whatever Money earn after-sale your Product or Services but the Profit Margin is that amount you got after deducting costs from sales revenue.
How to Calculate Profit Percentage in Excel
Select a cell give that name to COGS let’s say B2, Below that cell input Value(B3).
Next select a cell give that Name to Revenue(C2), Below that cell input value of Revenue(C3)
Calculate Profit Subtracting from Revenue to COGS.(Enter on D3, =(C3-B3))
Then Calculate Profit Margin Percentage, Dividing Profit by Revenue and Multiple 100. (Enter on E3, =(D3/C3)*100)
If you want Sample for Profit Margin on Excel then click profit margin in excel
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