Financial education
Profit Margin Explained
Profit margin expresses profit as a percentage of revenue.
How the math works
Profit margin is profit (revenue minus cost) divided by revenue, expressed as a percentage — it measures how much of each sales dollar is kept as profit rather than spent covering costs.
Worked example
A business with $250,000 in revenue and $190,000 in total costs has $60,000 profit, a 24% margin. That means 24 cents of every dollar in sales is profit; the other 76 cents covers costs.
What to watch for
- Gross margin (before overhead) and net margin (after all expenses) are different numbers — check which one you're looking at
- A high-revenue business can have a thin margin, and a low-revenue business can have a fat one — margin and scale are independent
- Margin trends over time usually matter more than a single period's snapshot
Practical takeaway
Compare your margin to others in your specific industry, not a generic benchmark — 'good' margin varies enormously by business type.