How Do You Determine A Profit Margin?
In business, cash is king. This is clear at the end of every month when accountants scramble to close the books and create reports for senior management. One key benchmark that managers are always looking for is profit margin. It’s a quick way to let all stakeholders know where a business is and what direction the next month’s operation may need to take. Determining profit margin is a relatively simple process. Determine the total revenue. This may be a matter of timing for many companies. Sales, or revenue, may be calculated when the service or item is delivered. It may be calculated when the cash transaction takes place. This determines which sales are included in which month’s revenue. Calculate the expense. This may also be called COGS (Cost of Goods Sold). Whatever costs are included in the cost of doing business apply here. For people-driven businesses, this may be payroll costs. Expenses are basically whatever it took to create the revenue. Subtract expenses from revenue. This e
