Profit & Profit Margin

Would you like to make a profit or a loss?  Well, if you are not an idiot, we assume you prefer to make a profit.

Profit is a measure of profitability.

"Profit" & "Profit margin" are different.

• Profit is calculated as a currency.  "Our clothing store had a \$300,000 profit this year"
• Profit margin is calculated as a percentage. "Our clothing store had a 5% increased profit margin this year".

Yes, Gross & Net have differences as well.

Gross profit / Gross Income / Gross Margin is the profit a company makes after deducting the variable costs associated with making and selling its products, or the costs associated with providing its services.

• Generally speaking, gross profit only includes variable costs and does not account for fixed costs.
• An example of variable costs, materials such as fabric, buttons, sewing machinery, shipping, etc.
• An example of fixed costs would be rent, salaries, office supplies, insurance, etc.

Although the terms are similar (and sometimes used interchangeably), gross profit is NOT the same as gross profit margin. Gross profit is expressed as a currency value, gross profit margin as a percentage.

The formula for gross profit is as follows:

Gross Profit = Revenue - Cost of Goods

The formula for gross profit margin is as follows:

Gross Margin = (Total Revenueâˆ’Cost of Goods Sold) / Total Revenue x 100

• total revenue minus cost of goods sold divided by total revenue times 100.

• By the way, you times by 100 at the end to figure out the "percent".

Net profit / Net Profit Margin Net profit is calculated as revenue minus "all" expenses from total sales (variable & fixed costs). The actual profit after working expenses not included in the calculation of gross profit have been paid.  Net profit margin measures how much profit your business generated as a percentage of your total revenue.

Net Profit = Net Sales  - Total Expenses

•  Net Sales is also referenced as Total revenue.

Net profit margin measures how much net income is generated as a percentage of revenues received.

Net Profit Margin = (Net Profit / Net Sales) x 100

• In other words, Revenue minus Cost of Goods Sold minus Operating & other Expenses minus Interest minus Taxes divided by revenue times 100.