## What is the difference between profit margin and return on investment (ROI)?

### What is the difference between profit margin and return on investment (ROI)?

Understanding and accurately calculating your Profit Margin and Return on Investment (or ROI) for a sale is crucial when determining how much profit you will make from a sale.

To have a firm grasp on your overall profit, you first need to understand how Profit Margin and ROI is calculated.

How can I calculate my Profit Margin?

Profit margin is calculated as Profit / Price (or Revenue).

For example, if you bought an item for \$2.18, sold it for \$9.59, and Amazon took a cut of \$4.63 your profit would be \$2.78 and your profit margin would be 29%.

Profit = Price or Revenue (\$9.59) – Fees (\$4.63) – Item Cost (\$2.18)

Profit Margin = Profit (\$2.78) / Price (\$9.59)

Your Profit Margin: 28.9% (round off to 29%)

How can I calculate my Return on Investment (ROI)?

ROI is calculated as Profit (revenue – all fees – all costs) / Product Cost (cost of goods) * 100.

Using the same example as above: your product cost is \$2.18 and it sold for \$9.59 with a \$4.63 fee. In this scenario, you would have a profit of \$2.78 and Return on Investment of 127.5%.

Remember, profit is your Price or revenue (\$9.59) – Fees (\$4.63) – Item Cost (\$2.18) = \$2.78

ROI = Profit (\$2.78) / Product Cost (\$2.18) * 100 (for percent calculation) =127.5%