Jaian Cuttari - What Do You Need To Know About Profit Margins?

In addition to determining how much money you make, profit margins represent how healthy your business is financially, according to the expert Jaian Cuttari.

Profit margins are important for businesses to remain financially sound.

Regardless of whether you're an established company or a young start-up working out of a garage, you should monitor your profit margins at all times. You need to make money to keep your company afloat, and tracking your profit margins can help you know if your business can grow.

What is a profit margin?

The profit margin is the metric for measuring your business's profitability. It is calculated as a percentage and shows how much of every dollar in sales or services the company keeps from its earnings. The profit margin is calculated by dividing the company's revenue by the net income, which is determined by subtracting the company's expenses from its revenue.

What is the formula for calculating the profit margin?

Let's start by talking about your gross profit margin. One of the most widely used metrics for determining profitability is profitability margin. Let's say you make $100 in revenue, but it costs $10 to produce the product. If you make more than one item, you can either average the costs of manufacturing each item or calculate a separate gross margin for each.

As the cost of making a product is known as the cost of goods sold (COGS), it includes wages and raw materials, but not overhead and taxes. In our example, revenue minus COGS is $90. According to the expert Jaian Cuttari, to determine your gross profit ($90), divide it by your revenue ($100): $90 * $100 = 0.9. At last, all you need to do is multiply that number by 100 to find the final percentage, which is 90%.