One of the most important factors of running a business is staying in business. That might sound a little redundant, but I’m sure you’ve seen businesses start and businesses fail in just about any aspect of your community. Why do so many businesses fail? Usually it is because they spend more money than they make. The difference between how much you spend (cost), and how much money you bring in (revenue), is profit. And profit is the main focus on how successful a business is.
So now that we know how important profit is, we need to look at the two main ways that profit is calculated. As stated above, profit is the difference between how much money is spent and how much is generated. Usually profit is measured as a percentage in either Profit Margin, or Profit Markup.
Profit Margin is calculated as the percentage of profit when compared to the total sales price. Profit Markup is calculated as a percentage increase over the cost.
For example: If you work at a clothing store and you have a 25% markup on a pair of jeans that has a cost of $40.00, your sales price would be $40.00 plus 25% of $40.00. This comes out to a sales price of $50.00.
For an example of Profit Margin: Using the same story, you have a sales price of $50.00. Your cost is $40.00. Your total profit is $10.00. $10.00 is 20% of $50.00. Your margin is 20%.
Sometimes it can be confusing, but you have the same dollar amount of profit, you are just measuring it differently.
To learn more about these terms, follow the links below:
Now that you know how to calculate margin, go out there and become a captain of industry!
CalcuNATION is a website featuring online calculators and educational resources for mathematics. Other Mathematical Blogs ( CalcuNATION on EduBlogs and CalcuNATION on Blogger)
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