Profit margin is a financial ratio that is of great importance to any business irrespective of size and industry. It indicates the amount of each earned krona that is left as profit after deductions of costs.
You can easily and quickly calculate the profit margin of your company using our calculator.
Profit Margin Calculator
How to Use
Enter your selling price and cost price to calculate your profit margin. The calculator will automatically apply the Swedish VAT rate and show you all relevant financial metrics.
Ready to Calculate
Enter your selling price and cost price to see your profit margin calculations
How the Calculator Works
Profit margin is calculated as follows:
Profit Margin % = (Sales – Costs) / Sales
- Sales = the company’s total revenue for a given period
- Costs = all expenses for the same period
You will be able to see the profitability of your business by inputting your own figures. These numbers are normally available in your income statement.
What is Profit Margin?
Profit margin is one of the important measures that determine the profitability of a company i.e. the amount of profit left after expenses.
- A positive profit margin implies that the company is profitable.
- A negative profit margin implies that the company is operating at a loss.
- The greater the percentage, the more profitable the company is.
Profit margin is commonly applied in comparison of companies in the same industry. Nonetheless, it does not consider the way the company is funded. Other measures that can be used to obtain a more comprehensive financial picture include return on equity and solidity.
What is a Good Profit Margin?
It depends on the industry since the profit margins differ considerably.
- The profit margin of some industries can be 20% or higher
- Some have margins as low as 2%
- The overall industry average is normally 5-7%
A company may be highly leveraged even when it is making a high profit margin. As such, profit margin ought to be taken together with other financial measures.
How to Improve Profit Margin
Profit margin can be improved in two key ways:
- Increase revenue – through attracting more customers, higher prices, or new products/services.
- Reduce costs – through reducing the cost of production, negotiating with suppliers or reducing fixed costs.
The optimal scenario is when revenue and costs go up simultaneously.
Example Calculations
- Year 1:
- Sales: 1,000,000 SEK
- Costs: 900,000 SEK
- Profit Margin = 10%
- Year 2:
- Sales: 1,100,000 SEK
- Costs: 900,000 SEK
- Profit Margin = 18.18%
- Year 3:
- Sales: 1,100,000 SEK
- Costs: 850,000 SEK
- Profit Margin = 22.72%
This demonstrates how a minor variation in the sales or costs can have a major impact on the profit margin.
Profit margin is also one of the main indicators of the profitability of a company, which is computed as (Sales – Costs)/Sales. The greater the percentage, the more profitable a company is, but the margins vary among industries. To have the full financial picture, it must be taken together with other ratios like the return on equity and solidity. The above calculator allows you to evaluate the profitability of your company in a short time.
