What is Profit Margin?

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“Margin. What exactly is it i m clay let me explain dramatic orchestral music let let s start at the very nbasics of profit margin and just from a mathematical. It is based as a npercentage and we ll kind of build from this point. So what exactly is a profit margin before i go any further.

I do talk about a couple of these next points in the video. I ve done before so i ll put a link below such as revenue and expenses and actually profit margin shows up in that video. But upon watching it back ni. Feel like i could ve done a little deeper dive into it hence the point of this video.

But if you re not sure what revenue is and expenses and stuff like that go and watch that video first. But assuming you do then we ll present it on here. So how is a profit margin nactually calculated well you have a very nvery basic straightforward calculation here and it nis revenue minus expenses and then you re gonna divide nall that by the revenue and again if you re nnot really exactly sure most people know what expenses mean. But unsure about revenue just go and watch that video from last week.

So you do that calculation nand then of course because it is remember nbased as a percentage. Whatever that gives you you want to multiply it by 100 to convert it into a percentage. So that is how a profit nmargin is calculated. But what actually is it how does it actually work well the way my mind kind of processes.

It is that a profit margin nfrom. A business standpoint is more so kind of what i would ncall business flexibility meaning. It s basically ntelling. You how flexible a business can be or nmaybe.

Just how constrained and how they can t really move that much. But that s how i picture. It as far as kind of just not nnecessarily an accounting way of looking at it..

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But just kind of a practical way is how nflexible can a business be and the flexibility is nbased on this percentage meaning. The lower that number is the lower the percentage nthe lower the profit margin. The less and less flexible. It is the higher that percentage nthe more flexible.

It is so what exactly do i mean by that well let me get a couple nof scenarios set up and then i ll see you back nhere in just a second. So here we have two companies ni. Know i got super creative with the names of these companies. But company a company nb and let s quickly run through the numbers here do a couple of calculations.

And then i ll show kind of how this flexibility would work in the real world all by very simple look at things. But it ll get the point across. So company a revenue of 100 again just keeping the numbers nvery. Very simplistic so they do 100 in revenue.

They being the company expenses right here you can see so just to keep the lights on 10 labor. So you gotta hire people 30. And then marketing. 20 you add these up which give you the total expense of 60.

So let s do the calculation real quick you d have 100 minus. The expenses so again revenue minus expense divide that by the nrevenue and that s gonna give you ultimately 40 . cause after you multiply it. By 100 40 now let s look at company b 100 revenue.

So that s the same lights. 20 labor. 50 marketing..

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20. So that the brings a total of 90. So here you d have again the nrevenue minus the expenses and then you want to divide nthat by the revenue again multiply it. By 100 and that s going to give you 10 .

So here to kind of make nyourself sound. Cool 40 profit margin for company. A 10 profit margin for company b. And i get it okay.

Yeah. Nnow you can sound cool impress. The friends whatever or maybe get made fun of by nthe friends. I don t know.

But the point being you actually know you re talkin business. But what does that actually mean in nterms of flexibility well let s just say for example that company a and b. Nthey. re competing against one another and they say you know what we want more customers nwe.

Want more clients so let s do this let s up our marketing budget. So here they re going to just up it by and i m gonna keep nthis even across the board. But marketing is going up by 10 okay so each company increasing ntheir marketing by 10. So this now becomes so from 20 to 30.

This now becomes again nsame as that 20 to 30. So what does this do to nour numbers down here well that s gonna add n10 more dollars here. So the 60 now becomes n70 and then this 90 add 10 more dollars to nit now becomes 100..

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So what does that do to nour calculations down here. Well this raises it to 70 so 100 minus 70 is. Now actually 30 so. The profit margin nhas dropped down to 30 in this case.

Though maybe you see where i m heading with nthis. This is now 10 more so 100. So you do the math here and their profit margin. Now is zero meaning they re not nmaking any money anymore their profit is gone even though both companies nonly raise it the same amount each invested 10 more into marketing.

Because company a had a nlot more flexibility going into this effort into nthis experiment. However you want to look at it ncompared to company b. They just had a much bigger advantage now the one part. I m nleaving out is because it s marketing.

Potentially nthat marketing effort would have raised the nrevenue. So that s one part that would ideally not remain. The same cause. You re spending more on marketing that number right there nyou should get more sales but setting all that aside the point here being that both companies wanted to increase their marketing and both companies could do that.

But because company a had more flexibility because they had a bigger profit margin at the start they were able nto do that experimentation and still walk away with making money maybe a little less money cause their profit margin was down. But walk away with making money. Whereas company b. Because they just had less nprofit.

Margin to begin with aka less flexibility. Yeah they did the same exact thing. But that ultimately led them to now not even making any money..

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So that s how profit margin works sometimes it can get a little wait what but at the core. All it is is telling you how flexible a business can actually be in order to try to grow and expand into the future first off thanks. So much for nwatching the entire video real quick before you go i want to invite you to a live nwebinar web class training workshop online event nwhatever. You want to call it.

But it will be me live nrevealing to you what i have discovered that has nallowed me to transform myself from being an employee nto being my own boss including how i had nonly one losing day out of 73 days in total. I m going to cover three nkeys that have helped me unlock profitable nconsistency within the markets. The first key is super weird but in a productive type of way the second key is super awesome because it quite literally is wired ninto our dna has humans making it very easy to use but in a cruel way this becomes a pitfall for many traders. I ll explain it all though.

Including how to avoid the pitfall nthat. It creates for some and yeah. The third key when you hear it sounds way too good to nbe true. But it s not and i ll show you how it all works then at the end.

I open nit up for a question and answer session that nis again totally live. Even if you can t make the live session. Please still sign up nas. It will be recorded and you can go back and watch the replay that i will send you click the image on the screen or click the link down in the description box so you can get the date and ntime and claim your spot.

Which i should note is limited due to the fact that this ntruly is a live event. If you have any questions let me know ” ..

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