If an item costs $1.00, and it is sold for $1.30, what is the profit margin?
I always thought it was (0.3/1.0) x 100 = 30%
But apparently it's (0.3/1.30) x 100 = 23% :confused:
Read the explanation here, and see if it makes any sense to you, because it confuses the hell out of me!
Disinfotainment: Profit Margin
In Germany (and probably other countries, too), the profit margin apparently is the difference between wholesale price and retail price, i.e. $0.3 in your example. But one may also express the profit margin as a percentage of the retail price (and not the wholesale price, as you expected), i.e. (0.3/1.3)x100 = 23%.
So you may say that you're selling a product for a certain retail price p, "23% of which is your profit" or "with a profit margin of 23%". It would be tedious to express the profit margin as a percentage of the wholesale price: "I sold a product for a certain retail price p and 30% of its wholesale price is my profit".
Or to put it in yet another way: the profit margin tells you which part of the retail price is your profit, and not which part of the wholesale price together with the wholesale price itself constitutes your retail price.
sell price * (1 - profit margin) = retail price
sell price = retail price / (1 - profit margin)
retail price / sell price = (1 - profit margin)
$1.00 / $1.30 = 1 - profit margin
23% = profit margin
$1.30 = $1.00 / 0.77
Profit margin - Wikipedia, the free encyclopedia
I'm guessing they have a different definition between profit and profit margin.
If I sold something for $130 which I bought for $100, then I would say I made a 30% profit. Profit margin on the other hand, is probably something different and I don't really care about since I'm not a salesman.