Profit Margin

ˈprɔ.fit mɑ:ǰin / Profit Margin


Profit margin (sometimes called net profit ratio) is the measure of the profitability of a business, expressed in percentage.

To compute, divide the net income by the revenue, and multiply the quotient by 100.

The ideal profit margin may vary from one industry to another. However, in general, 20% is considered high, 10% is average, and 5% is poor.

It has three main metrics:

1. Gross profit margin - revenue minus cost of goods sold
2. Operating profit margin - operating income divided by sales revenue
3. Net profit margin - revenue minus all expenses

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