The profit margin is the percentage of profit within the revenue.
This profitability metric facilitates the comparison of companies, offices, departments, and even employees, not by the amount of income but by the profitability percent. It could be the main metric to track for optimal control of the company. The typical profit margin for a professional services organization is in the 15% to 25% range, while a particular project margin could be from 25% to 50%, and the profit margin for a particular consultant could be from 50% to 400%.
Measurements should be taken over time to compare the current margins to previous ones. Often, a profit margin goes down while the company grows fast. The profit margin is the primary metric in the consulting business model. By comparing the planned and actual profit margins, officers can review a company's operational results.
With profit margin measurements, you can:
- Know how close the projected delivery was to the estimation
- Compare the performance of teams
- Compare the profitability of projects
- Compare yourself to industry norms
- See the organization's progress over time
- Make a relative comparison of the organization's financial performance to the industry average as well as compare companies, offices, and departments between each other.
There are multiple types of profit margin in Metric.ai:
Recognized Profit Margin = Recognized Revenue / Recognized Profit
Note: If Profit = 0, Profit Margin is just 0.
Planned profit margin comes from planned revenue and profit, which is based on future allocations (organization resources schedule).
Planned Profit Margin = Planned Revenue / Planned Profit
Forecasted profit margin consists of recognized (logged) profit margin before today and planned profit margin after today.
To learn more about the analytics view of Metric.ai, please read Analytics overview help documentation.