Finance
What is Profit margin?
Profit margin is the percentage of revenue a business keeps as profit after costs. It shows how efficiently a company turns sales into actual earnings — a higher margin means more profit from each unit of revenue.
See it, don’t just read it.
Watch a 2-minute lesson with voice + animation that explains profit margin.
Key things to understand
- 1Profit margin = profit ÷ revenue, as a percentage.
- 2'Gross margin' counts only direct costs; 'net margin' counts all costs.
- 3Higher margins mean more efficient, profitable operations.
- 4Margins vary hugely by industry (software high, groceries low).
Frequently asked questions
- How do you calculate profit margin?
- Divide profit by revenue and multiply by 100 to get a percentage.
- What's a good profit margin?
- It depends on the industry; software can exceed 70%, while retail may be under 5%.
- What's the difference between gross and net margin?
- Gross margin counts only direct costs; net margin subtracts all expenses, including overhead and tax.