Profit margin tells you how much of every sale you actually keep. It is a better measure of health than revenue alone — you can grow sales and still go broke on thin margins. This guide shows how to calculate gross and net margin, the markup trap to avoid, and how to improve your margins.
What is profit margin?
Profit margin is profit expressed as a percentage of sales. It answers "for every dollar I sell, how much do I keep?" There are two main versions — gross and net — and both matter.
Gross margin vs net margin
Gross margin looks at profit after the cost of the goods themselves:
Net margin looks at what is left after all costs — overheads, interest and tax:
See the difference in full in gross profit vs net profit.
A worked example
You sell $100,000 in a month. The goods cost you $60,000, and other running costs are $30,000.
- Gross margin = ($100,000 − $60,000) ÷ $100,000 = 40%.
- Net margin = ($100,000 − $90,000) ÷ $100,000 = 10%.
Margin vs markup
Do not confuse margin with markup. Markup is profit over cost; margin is profit over price. A product marked up 50% has only a 33% margin. Getting this right is central to pricing for profit.
What is a good profit margin?
It varies widely by industry — high-volume, low-margin categories like groceries run thin, while specialty goods run higher. Compare against your sector and, more importantly, track your own margin over time.
How to improve margin
- Raise prices where the market allows, or shift mix toward higher-margin lines.
- Lower cost of goods by buying better and cutting waste.
- Trim overheads that do not drive sales.
- Discount deliberately, not habitually.
RushFlow calculates gross margin on every sale and product, so you always know which lines are worth selling.