What is Profit Margin?
Profit margin is the percentage of revenue that remains after deducting costs. It indicates the financial health of a business. While revenue tells you how much money is coming in, profit margin tells you how much of that money you actually get to keep.
🎯 Business Goal: To optimize pricing so that your business is sustainable. High revenue is meaningless if your margins are too thin to cover operating expenses.
⚠️ Common Fear: “Why is my bank account empty even though sales are up?” Many new business owners confuse Markup with Margin. A 50% markup on cost does NOT mean a 50% profit margin on sales.
💡 The Decision: Always base your business decisions on Margin, not Markup. Margin tells you how much of every ₹100 of sales is profit, which is what you need to know to pay your overhead.
How to Calculate Profit Margin
The formula for Gross Profit Margin is:
Profit Margin Formula
Example
If you sell a product for ₹1,000 and it costs you ₹600 to make:
- Gross Profit = ₹1,000 - ₹600 = ₹400
- Profit Margin = (₹400 / ₹1,000) × 100 = 40%