What is the difference between profit margin , gross margin , and revenue ?
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If you sell 2 cookies for $5 then your total revenue is $5 ($2.50 per cookie).
If materials (dough, water and chocolate chips) costed you $2 ($1 per cookie) then your gross margin is revenue – costs of goods sold = $5 – $2 = $3.
Then let’s say you rent your cookie stand for $1 a day. So after your gross margin of $3 you have to deduct $1 for yoour fixed expense of renting the stand and finally you have a profit or net margin of $2 (assuming no taxes in this example).
Gross margin is important because if you sell more cookies you’re still earning a gross margin $1.5 per cookie sold, and since your fixed expenses won’t change if you sell 1 or 10 cookies (you still just lay $1 for renting the stand per day) it will go straight to your profit margin.
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