Definition and calculation of profit margin

Lesson Details:

Video Transcription: Now let's discuss the profit margin this video is brought to you by Appy Pie’s Academy we're gonna cover the definition and the formula first let's do the definition it's essentially a measure of your company's profitability as a percentage not in dollar amounts another way to look at it is to see how truly profitable is the business and another way to look at it and I'm just gonna get and I'm just giving you a few perspectives so it's not confusing me because I know these terms can be very confusing so it's what percentage of sales end up becoming actual profits because you can make a lot of sales but what if it costs you more to run the business then you get sales well that doesn't help right so here's an initial example let's say if you have 10 percent profit margin what does that mean it means that for every dollar that comes into the business has revenue you only keep 10 cents as a profit hmm little low right you got a dollar oh no I only got 10 cents so you want to do what you can to raise your profit margin and for different businesses there's different expected profit margins we'll talk about that in a second but let's do the formula it's essentially your net profit divided by revenue that's it it's relatively simple as a formula so that's how you calculate it but now I'll show you how do you know what to expect for your business so I literally just went to Google and I said profit margin for a bar and it gives me some articles now you have to try to determine the credibility of the website that's giving this to you so toast tab I've never heard of them they might be credible they might not I just personally never heard of them but they give you some ideas of what profit margins can be expected now let's go a coffee shop and they give you the profit average profit margins first coffee shop and you click on it but essentially this article probably will explain to you how the coffee shop industry works and what's gonna happen is I'm gonna give the coffee shop here in the search and what you'll see is mobile applications right so you can actually do any business so whatever your business is try to type this in just like this and you'll see what the expected profit margin is if you haven't started your business this is almost irrelevant because this is something you would calculate when your business is up and running but if your business is up and running then you of course you want to understand what your current profit margin is and compare it to industry expectations to see whether you are in the expected range and always of course think about what can you do to increase preferable ax t.