Profit Margin

Definition

The share of revenue left as profit, expressed as a percentage. Gross, operating and net profit margins differ in which costs they subtract.

A margin expresses profit per dollar of revenue, so it can help compare businesses of different sizes. The type of margin matters. Gross margin focuses on direct costs, while operating and net margins reflect progressively different sets of expenses.

Example

Company A earns $10 in net profit on $100 in sales. Company B earns $5 on the same sales. Their net profit margins are 10% and 5%.