The Profit Margin is the fraction of the Price that is in excess of the Cost. It represents the gross Profit.
The Percent Profit Margin is the Profit Margin represented as a percentage of the Price.
Profit Margins are based on the following formulas:
Profit Margin = (Price - Average Cost)/Price
Percent Profit Margin = Profit Margin * 100
For example:
Average Cost = $2.00, and Price = $4.00
Profit Margin = (4-2)/4 = 2/4 = .5
Percent Profit Margin = .5 * 100 = 50 = 50%
The Percent Profit Margin for each price field appears to the right of the price. When the price is changed, the Percent Profit Margin changes.
Prices may also be changed by changing the Percent Profit Margin:
- Select the Price to be changed.
- Press [Ins] to display the Percent Profit screen.
- Enter the desired Percent Profit Margin in the Profit field.
- Press [Enter] to save the change and return to the database screen. The price now reflects the Profit Margin that was entered and the new Profit Margin appears to the right of the price.
To change a price by a percent of itself:
- Enter +Xp (where X is the percent) directly into the price field. If the current price is $10.00 and +20p is entered, it adds 20% to the current price resulting a new price of $12.00.
Note: The percentage displayed next to the price is rounded to the nearest percentage point.
Note: There is a difference between Profit Margin and Markup. Profit Margin is the profit, represented as a percent of the Price. Markup is the profit, represented as a percent of the Cost.
50% Profit Margin = 100% Markup = 2 * Cost.
90% Profit Margin = 900% Markup = 9 * Cost.
What about 100% Profit Margin? 100% Profit Margin does not equal 100% Markup. 100% Profit Margin = infinite Markup = Infinity * Cost because Price = Cost/(1-1), or Price = Cost/0, which is equal to 0. If 100 is entered in the Percent Profit screen, the 100 is automatically converted to 99% Profit Margin, or 100 * Cost.
See:
Inventory Database - Main Screen Fields