About this calculator
The Margin Calculator assists you to find your business profitability through the calculation of cost, revenues, profit, and margin.
Margin vs. markup
The gross margin and markup have a slight difference which is significant. Former is the ratio of profit to the sales price and the latter the ratio of profit to the purchase price (cost of goods sold). Profit to a layman is also referred to as markup or margin in the case when we are dealing with raw figures not percentages. It is fascinating how there are individuals who would want to compute the markup and others who would be thinking in terms of the gross margin. Markup appears to us more intuitive, but in terms of the number of searches done on markup calculator and margin calculator, the later is several times more popular.
What's the difference between gross and net profit margin?
Gross profit margin is the amount of money that a business retains after meeting the direct cost of producing its goods or services which include the raw materials and labor. It is obtained by dividing the difference between the total revenue and the cost of goods sold (COGS) by revenue and multiplied by 100. This margin can make you realize the efficiency of a firm in terms of production and pricing of products. Conversely, the net profit margin is used to gauge the percentage of the revenue left to actual profit after deducting all the expenses that are comprised of the operating costs, taxes, interests, and all other overheads. It shows the overall financial performance of the company and the capacity to convert the sales into profit. The gross profit margin concentrates on efficiency of production and pricing where the net profit margin presents the entire scenario of overall profitability.
Can profit margin be too high?
Yes, profit margin may also be excessive, and that does not necessarily have a good omen. Although a high margin can be good indicator of high profitability, it can also mean that a business is over pricing its products, it is not investing enough in other areas such as marketing or innovations or that it is enjoying temporary conditions in the market which may not sustain. In other situations, very high margins may lead to competition or loss of customer loyalty which is detrimental in the long term growth and stability.