Profit Margin
Net income divided by revenue as a percentage.
Profit margin (net profit margin) shows what percentage of revenue translates into actual profit after all expenses, taxes, and costs are subtracted. It's the bottom-line efficiency metric. Average net margins vary by industry—professional services may achieve 15–25%, while restaurants often operate at 3–9%. Improving profit margin requires either increasing revenue without proportional cost increases or cutting costs.
Formula
Profit Margin = (Net Income ÷ Revenue) × 100Example
A consulting firm earns $400,000 in revenue with $340,000 in total expenses (including taxes), yielding $60,000 net income and a 15% profit margin.
Why It Matters for Your Business
Profit margin tells you how much of every dollar you keep—even high-revenue businesses can struggle if margins are razor-thin.
Related Terms
More Business Terms
Accounts Reconciliation
Ensuring account balances match between different records.
Break-Even Point
The sales volume at which revenue equals costs.
Budget
A financial plan estimating income and expenses.
Financial Forecast
A prediction of future financial performance.
Capital Expenditure
Funds used to acquire or upgrade physical assets.
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