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Margins

Your business's profit is a great way to see how much money your business is actually bringing in, but margins can be an even better way to measure how well your business is doing. Margins are the percentage of each dollar your business brings in that it actually gets to keep.

Like profit, there are two different kinds of margins:

Gross profit margin is your business's gross profit multiplied by 100 and then divided by your revenue.

  • Gross profit margin = (Gross profit * 100) / Revenue

For example, if you're running a lawn care business and a grass cutting has a revenue of $50 and a gross profit of $30, this would be the calculation:

  • $50 revenue
  • $30 gross profit
  • ($30 * 100) / $50
  • Your gross profit margin is 60%

Gross profit margin is a great way find pricing problems with certain jobs you do. If a job has a low gross profit margin it could mean you're not charging enough for that service, since you're only bringing in a small percentage of the revenue. It also lets you compare different types of jobs, big and small, and see which ones are most profitable.

Net profit margin is similar to gross profit margin, however you multiply your business's net profit by 100 instead of gross profit and then divide that by revenue.

  • Net profit margin = (Net profit * 100) / Revenue

An example of net profit margin might look like this: for the year, your lawn care business brought in $40,000 in revenue and had $14,000 in net profit, so to get your net profit margin the calculation would be:

  • $40,000 revenue
  • $14,000 net profit
  • ($14,000 * 100) / $40,000
  • Your net profit margin is 35%

Net profit margin is useful for getting an overall view of your business's profitability. If your business is seeing increased revenue but your net profit margin is still low, it could indicate a problem. The higher the percentage, the more money goes into the business's bank account.

To help you figure out your margins, we've created a profit margin calculator to make figuring out your gross and net profit margins easier.