What is the Difference between Profit Margin and ROI?

When it comes to calculating your profit, two different metrics can guide you: “ROI” (return of investment) and “profit margin“.

  • Profit Margin: It is a profitability ratio that measures the amount of net income earned with every dollar of sales generated. 

Profit margin can be calculated with the following formula: Profit / Revenue. 

Profit Margin Formula
Figure 1 – Profit Margin Formula

Here, the cost and fees should be considered to calculate the correct profit margin.

Let’s make it more clear with an example. You buy a product for $30 and want to sell it for $100. Amazon cuts of 15% fee, which means $15 goes to Amazon. As a result, the profit is $55. (Revenue ($100) – Cost ($30) – Fees ($15))

By calculating the profit, we can find the profit margin: Profit ($55) / Revenue ($100) = 55%

  • ROI (Return of Investment): ROI measures the return on investment against the investment cost. It tells how much you gain for a single dollar you spend. The higher ROI, the better. 

Return of investment can be calculated by the following formula: Profit / Cost x 100

Figure 2 – ROI Formula

Based on the previous example, let’s assume the profit is $55, whereas the cost is $20. The ROI will be: Profit ($55) / Cost ($20) = 275%

Don’t be confused with all these numbers and formulas.
Let Eva calculate for you and help you on your way to having better profits.

Need More Help? Let Our Team Guide You To Success!

Was This Article Helpful?

Reach Our Experts Anytime via Chat, We Are Willing to Help You!

Can't find what you need in our Help Documentation? Get in touch with one of our Amazon Experts now!