Glossary of Terms for Profit Margins and Business Calculations
Welcome to the Glossary Page for the Calculate Margin Calculator! Here, you’ll find clear and concise definitions of key terms related to profit margins, pricing strategies, and eCommerce business calculations. Use this page as a reference to better understand the concepts behind your calculations.
Key Terms and Definitions
- Profit Margin
The percentage of revenue that remains as profit after all expenses are deducted.
Example: If a product sells for $100 and costs $70 to produce, the profit margin is 30%. - Gross Profit Margin
The ratio of gross profit to revenue, expressed as a percentage. It highlights profitability before deducting operating expenses.
Formula: (Revenue – Cost of Goods Sold) ÷ Revenue × 100. - Net Profit Margin
A percentage showing the profitability of a business after all expenses, taxes, and interest are deducted.
Formula: (Net Income ÷ Revenue) × 100. - Markup
The percentage increase applied to the cost of a product to determine its selling price.
Formula: (Selling Price – Cost Price) ÷ Cost Price × 100. - Break-Even Point
The point at which total revenue equals total expenses, resulting in neither profit nor loss.
Formula: Fixed Costs ÷ (Selling Price per Unit – Variable Cost per Unit). - Cost of Goods Sold (COGS)
The total direct costs of producing goods sold by a business, including materials and labor. - Variable Costs
Costs that vary with the level of production, such as raw materials and direct labor. - Fixed Costs
Expenses that remain constant regardless of production levels, like rent and salaries. - Operating Expenses
Day-to-day expenses required to run a business, excluding the cost of goods sold. - Revenue
The total income generated from selling goods or services before expenses are deducted.
Advanced Terms for eCommerce Businesses
- Customer Acquisition Cost (CAC)
The cost of acquiring a new customer, including marketing and sales expenses. - Average Order Value (AOV)
The average amount a customer spends per order.
Formula: Total Revenue ÷ Number of Orders. - Lifetime Value (LTV)
The total revenue a business expects to earn from a customer during their lifetime. - Return on Investment (ROI)
A measure of the profitability of an investment.
Formula: (Net Profit ÷ Investment Cost) × 100. - Conversion Rate
The percentage of visitors who complete a desired action (e.g., making a purchase).
Why This Glossary Matters
Understanding these terms is crucial for making informed decisions about pricing, profitability, and business growth. Whether you’re a small business owner, eCommerce seller, or entrepreneur, these definitions will help you use tools like the Calculate Margin Calculator more effectively.