There are many financial terms that are important in sales andwhen running a business. Here are the most important you mayfind helpful in using our margin calculator.
Gross Profit Margin
While the two terms — gross profit and gross margin — are usedinterchangeably, there is one big difference between them. Grossprofit is expressed in percentages, while gross margin is incurrency.
Also, the gross profit margin is calculated by considering onlynet sales, or your sales price minus COGS. It doesn't concernother costs of your business like, for example, sellingexpenses, general admin expenses, costs of having an office andemployees.
To make it easier, you can think about it as of gross marginpercentage.
Net Profit Margin
Net profit margin (or net margin) is usually expressed as apercentage but can also be shown in a decimal form. It's the netincome after deducting all the expenses and costs (e.g., taxes,marketing costs, admin expenses, office rental).
Net profit margin = Revenue - costs
Net profit margin helps to assess if operating costs are coveredand the product you're selling is profitable and brings value tothe company.
Operating Profit Margin
The operating profit margin formula is simple: operating profitmargin = operating profit ÷ total revenue
To calculate operating profit, you need to subtract from therevenue all operating earnings like COGS, costs of running abusiness, taxes, and interests.
Operating profit margin is also expressed in percentage.
Operating profit margin indicates how well the company ismanaged because it includes variable costs that may change overtime and in different circ*mstances. It's not always easy tomanage these expenses.
