Profit Margin

What is profit margin?

Profit margin shows what percentage of your revenue you keep as profit. If you earn $10,000 and your profit is $3,000, your profit margin is 30%. It's a key measure of business efficiency—higher margins mean more of every dollar earned goes into your pocket.

Types of profit margin

Different margins measure different things:

• Gross margin — (Revenue − COGS) ÷ Revenue. Shows profit after direct costs.
• Operating margin — Operating income ÷ Revenue. Shows profit after operating expenses.
• Net margin — Net profit ÷ Revenue. Shows final profit after everything including taxes.

Improving profit margin

You can increase margin by raising prices, reducing direct costs, or cutting overhead. Even small margin improvements add up significantly over time. If your margin is 20% and you increase it to 25%, that's a 25% increase in profit on the same revenue.