You must comprehend the following three terms before understanding margin.
Revenue is the money you earn from selling goods and services. The top line of your profit and loss account, known to that as revenue, shows earnings before deductions.
Cost of goods sold (COGS): The costs associated with producing your goods and offering your services. Add up the prices of materials and direct labour to determine COGS.
Gross profit: The money you have left over after paying all of your costs for producing your goods and offering your services. Revenue less COGS equals gross profit.
What is Margin?
The revenue you make after paying COGS is shown by margin, often known as gross profit margin. Your margin is essentially the discrepancy between your profit and your cost of profit.
How do I Calculate Margin?
Start with your gross profit, which is the difference between revenue and COGS to figure out your profit margin.
Next, determine what proportion of the revenue is the gross profit.
Divide your gross profit by your revenue to get this.
Once you multiply the sum by 100, you will obtain the margin percentage.
Revenue = $50
Gross profit = $50−$30=$20
Divide gross profit by revenue: $20 /$50 = 0.4
Percentages: 0.4 . 100 = 40%
You can use this method to determine profit margin, or you can use our margin calculator instead.
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