← Back to Glossary
Profit Margin
Definition
Profit margin is the percentage of revenue remaining after all costs are deducted, measuring how much profit a business keeps per dollar of sales.
Explanation
Profit margin is calculated as (Revenue - Costs) / Revenue × 100. Gross profit margin considers only direct costs, while net profit margin includes all expenses. Higher margins indicate a more profitable business. Margins vary significantly by industry.
Improving profit margins involves increasing prices, reducing costs, or improving operational efficiency. Even small margin improvements significantly impact bottom line.
Example
A business with $500,000 in revenue and $350,000 in total costs has a 30% profit margin ($150,000 / $500,000).