For progressive growth, a business needs to be familiar with its financial journey. One of the most significant ways is to keep monitoring the profit percentage.
What is Profit Percentage?
The amount of profit that a business incurs in terms of percentage is called profit percentage. It is the calculation of financial benefits in percentage after the business has paid all of its expenses.
There are two types of profit percentages:
Markup: calculation of the percentage of profit with respect to the cost price.
Profit Margin: calculation of the percentage of profit with respect to the selling price.
It is one of the most significant ways to determine the financial health of a business. It can help you make better decisions and resolve future financial risks effectively. Besides efficient financial planning, a good profit percentage can help attract potential investors to the business.
Profit Margin Metrics
There are three main metrics that are used as input to calculate the profit percentage.
Cost price (CP): It is the price of the purchase of an item. In the case of production, it may include all the expenses such as raw materials, taxes, administrative expenses, and all.
Selling price (SP): It is the price of the sale of an item.
Profit: Profit is the condition when the selling price of an item is more than the cost price of the same.
Profit = Selling Price (SP) – Cost Price (CP)
Formula to Calculate Profit Margin
To calculate the profit percentage, you will need the below-mentioned formula.
Profit Percentage (Markup) = Net Profit (SP – CP)/Cost Price (CP) X 100
Profit Percentage (Margin) = Net Profit (SP – CP)/Selling Price (SP) X 100
Let’s understand the application of these formulae with the following simple example.
A vendor purchased a book for $100 and sold it for $125. Now we need to calculate the profit percentage (markup as well as margin).
Profit % (Markup) = $25(SP – CP)/$100(CP) X 100 which is equal to 25%
Profit % (Margin) = $25(SP – CP)/$125(SP) X 100 which is equal to 20%
Know the Best Profit Margin Calculator Tools
In a busy business schedule, you definitely won’t have enough time to do all the profitability math manually. Nevertheless, there are many profit margin calculator tools online that do this job quickly.
Here are a few of the best options to choose from:
Shopify Profit Margin Calculator
Shopify’s profit margin calculator tool helps you identify the selling price of your products that you should set. As a result, with its estimated selling price, you can increase business profitability.
You simply need to add the cost of each product along with the profit percentage you want to make on every sale. It works on the in-built profit margin formula and calculates the result instantly.
In order to build a competitive pricing strategy for your business, you can utilize this tool and calculate profit margins.
Shopify also lets you start your online store in minutes.
Good Calculators is a platform that comes with a large number of online calculator tools, including a profit margin calculator. You are required to enter the cost and selling price per unit along with quantity and discount values. And it calculates the markup profit along with cost and selling unit values.
Everyday Calculation offers an online profit and loss calculator tool that calculates the selling price of the product. It utilizes the profit, profit margin, and profit percentage formula to carry out calculations. It is also available for download for Android and iOS devices. With its downloaded versions, you can enjoy its calculations even offline.
CalculatorSoup is an online profit margin calculator that can do calculations in a single click. With this calculator, you can calculate net profit, profit percentage, and profit margin using cost and revenue. You just need to enter the cost of the product and total revenue. It generates a link to the calculation that you can share via email, social media, or more.
Profit margin offers you a great view of your business’s financial status that ultimately helps you in framing business strategies. So, to effectively calculate the profitability of your business, use any of these online tools and decide your financial plan.