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Margin Calculation Formula:
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Margin calculation determines the percentage difference between the selling price and the cost of a product or service. It represents the profit made as a percentage of the selling price, helping businesses understand their profitability on each sale.
The calculator uses the margin formula:
Where:
Explanation: The formula calculates what percentage of the selling price represents profit after accounting for the cost.
Details: Margin calculation is essential for pricing strategies, financial planning, and business profitability analysis. It helps businesses set appropriate prices, understand their cost structure, and make informed decisions about product lines and services.
Tips: Enter the selling price and cost in USD. Both values must be positive numbers, and the price must be greater than the cost for a valid margin calculation.
Q1: What's the difference between margin and markup?
A: Margin is calculated as (Price - Cost)/Price, while markup is calculated as (Price - Cost)/Cost. Margin shows profit as a percentage of price, while markup shows profit as a percentage of cost.
Q2: What is a good profit margin?
A: Good profit margins vary by industry. Generally, 10-20% is considered good, but some industries may have higher or lower typical margins.
Q3: Can margin be negative?
A: Yes, if the cost exceeds the price, the margin will be negative, indicating a loss on the sale.
Q4: How often should I calculate margins?
A: Regularly monitor margins, especially when costs change, when introducing new products, or during periodic financial reviews.
Q5: Does this calculator work for service businesses?
A: Yes, the same formula applies to service businesses where you have a service price and associated costs.