finance
Profit Margin
Profit as a percentage of revenue. The compact measure of business efficiency.
Definition
Profit margin is profit divided by revenue, expressed as a percentage. Three common versions: gross margin (after COGS), operating margin (after operating expenses), and net margin (after everything including tax). Each tells a different story: gross margin reveals product profitability, operating margin reveals operational efficiency, net margin reveals the bottom-line result. Industry benchmarks vary widely - what's healthy depends entirely on the business model.
In your business
- →Track all three margins - not just net - to see where leverage is
- →Benchmark within your industry, not across industries
- →Trending margin is more important than absolute margin - declining margins signal problems even if levels are OK