What is the difference between profit margin , gross margin , and revenue ?

Question

What is the difference between profit margin , gross margin , and revenue ?

In: 135

Answer 1

Profits is revenue – expenses.

So let’s say you have a business that makes bookshelves. You have to buy lumber, saws, drills, and screws. You put in the labor and turn that stuff into a bookshelf.

All that stuff cost money. Let’s say you paid $30 in all those materials and additionally $600 for the machines. But you sell each bookshelf for $60.

So you make and sell 20 bookshelves. So some quick math tells us our revenue is 20 x $60 or $1,200.

However we have to consider our expenses. $30 x 20 = $600

And then we also have to consider the one time cost of the equipment.

$600+$600 = $1,200.

So revenue is $1,200 but because costs were $1,200 our profit is 0.