What is the difference between profit margin , gross margin , and revenue ?
In: 135
You make a widget that costs $1.00 to make. The cost is the raw materials and the wages you pay to Joe to make them.
You need to sell your widget for at least $1.00 to break even.
Every penny you sell the widget above the $1.00 cost to make a widget is your gross margin.
But you need to pay Harry in Accounting and Betty in Sales 35 cents each to keep the business going.
So you sell each widget for $1.70
Your gross margin is 70 cents but your profit is $0 ($1.70-$1.00-$0.70 = $0.00)
But being the greedy capitalist pig you are you as the owner CEO need to make a living too and pay for your three houses. So you add to the sales price $1,000 per widget. This is your profit.
Revenue $1,001.70
Cost to produce $1.00
Gross Margin $1,000.70
Wages to Betty and Harry $0.70
Profit Margin to you $1,000
This isn’t the best example though because the profit to you as the owner CEO is made up and not reflective of our present economic system.
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