Profit Margin

What is profit margin?

Profit margin tells you what percentage of your revenue becomes profit. If you have a 20% profit margin, you keep $0.20 of every dollar earned after all costs. It's one of the clearest indicators of business health—high margins mean you're keeping more of what you earn.

For contractors and service providers, understanding margin helps you price jobs to actually make money, not just stay busy.

Types of profit margin

There are several margin calculations:

• Gross profit margin — (Revenue − COGS) ÷ Revenue. Shows profitability before overhead.
• Operating profit margin — Operating income ÷ Revenue. Shows profitability from operations.
• Net profit margin — Net profit ÷ Revenue. The bottom-line percentage you keep.

Example: $100,000 revenue with $15,000 net profit = 15% net profit margin.

Margin vs. markup

Margin is profit as a percentage of the selling price. Markup is profit as a percentage of cost. A 50% markup doesn't equal 50% margin. If you mark up $100 to $150, your markup is 50% but your margin is 33% ($50÷$150). Don't confuse them when pricing.