Business finance glossary
Profit margin
Net income divided by revenue — the percentage of each dollar of sales that becomes profit.
Profit margin (or net profit margin) is net income divided by revenue, expressed as a percentage. A 15% net profit margin means for every $100 in sales, $15 becomes profit after all expenses including taxes. It is distinct from gross margin (revenue minus cost of goods sold, divided by revenue), which excludes operating expenses, interest, and taxes. Industry benchmarks vary widely: software companies often achieve 15–30% net margins; grocery stores operate at 1–3%. Gross margin is more useful for pricing analysis; net margin is more useful for overall business health assessment. Operating margin (EBIT / revenue) sits between the two and removes financing effects.