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Accounting Terms
Profit Margin
Definition
The percentage of revenue that remains as profit after expenses.
Overview
Profit margin shows how much of each dollar earned becomes profit. It's a key measure of business efficiency and pricing strategy effectiveness.
Example
Revenue of $100,000 with $70,000 in expenses = $30,000 profit = 30% profit margin.
Best Practices
Calculate margins regularly, compare to industry benchmarks, and adjust pricing or costs as needed.
Common Mistakes to Avoid
Not tracking margins
Ignoring hidden costs
Pricing without margin analysis
Frequently Asked Questions
What's a good profit margin?
Varies by industry. Service businesses often target 20-50%. Research your industry benchmarks.