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

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

In: 135

Imagine that you make cookies , then rent a small stand to sell them:

**Revenues** is all the money you got from customers who bought your cookies.

**Gross margin** is Revenues minus all the ingredients you bought for your cookies (flour, milk eggs, I don’t know, I’m not a good cook). It would be even simpler if you bought cookies wholesale and resold them

**Profit margin** is your Gross margin minus all the other costs : the rent fee for your stand and your wages as a baker

*Edit : I took a quite a few shortcuts / oversimplifications in that ELI5, thanks to all who took the time to clarify / specify in the comments*

Revenue is total money earned from sales. Gross profit is revenue minus expenses before taxes. Profit margin is gross profit as a percent of revenue.

For an example, let’s say you run a hot dog stand where you pay \$1 for a hot dog and its bun then sell it for \$2.50.

Revenue is the money your business takes in which is \$2.50 per dog.

Gross margin is the difference between the cost of goods and their selling price. Here it would be \$1.50 per dog.

Profit is what you get to keep after covering *all* the costs. That \$1.50 isn’t what you keep. You need to subtract the cost to heat the food, pay for your business license, rental for your hot dog cart, etc.

Revenue is how much money you get.

Gross margin is how much money you get minus the cost of whatever it was you sold.

Profit margin is how much money you get minus the cost of whatever it was you sold minus the cost of whatever you spend running your business.

Revenue/income is the (gross) amount received from sales or other income streams.

Gross profit is income less costs attributable to that income (e.g. cost of sales – the cost of stock purchases)

Operating profit is gross profit less other operating expenses (admin, distribution).

Net profit is what’s left after all expenses are paid including interest and tax. Tax is the last thing to be deducted.

Margin is the difference between the gross and net figures divided by the gross figure, mark-up is the difference divided by the net figure. For example, item ‘x’ costs you £1, you sell it for £1.50, that’s a 50% mark-up and a 33% margin. You make sales of £1.5m with goods costing £1, that’s a 33% gross profit margin.