Glossary
Definition
Profit Margin
The percentage of revenue that becomes profit.
Profit margin is the percentage of revenue remaining after costs are deducted. There are several types: gross margin (revenue minus cost of goods sold), operating margin (after operating expenses), and net margin (after all costs including interest and taxes). Software companies typically achieve net margins of 20–40%; retailers often operate at 2–5%.
Frequently Asked Questions
What is a good profit margin?
It depends heavily on industry. Software and pharmaceutical companies typically have high margins (20–40%+). Retailers, airlines, and food companies often operate at 2–10% net margins. Comparing margins is only useful within the same industry.