Profit margin is the percentage of revenue that remains after subtracting costs and expenses. It helps businesses measure profitability and understand how much money is earned from each sale after costs are covered.

Profit margin is calculated using the following formula:

$\text{Profit Margin} = \frac{\text{Selling Price} – \text{Cost Price}}{\text{Selling Price}} \times 100$

Profit Margin=Selling PriceSelling Price−Cost Price​×100

For example, if a product costs $50 and sells for $100, the profit margin is 50%.

Profit margin is based on the selling price, while markup is based on the cost price. Margin shows how much profit is made from revenue, whereas markup shows how much the selling price exceeds the original cost.

Yes. A negative profit margin means your expenses are higher than your revenue. This indicates a business is losing money on each sale or operating at an overall loss.

A good profit margin depends on the industry. Many businesses aim for margins between 10% and 20%, while digital products and software businesses often achieve much higher margins due to lower operating costs.

Profit margins usually shrink when expenses rise faster than revenue. Common causes include higher material costs, increased advertising spend, shipping costs, inflation, discounting, or inefficient operations.

Break-even analysis calculates the point where total revenue equals total expenses. At this stage, the business makes neither a profit nor a loss. Every sale after the break-even point contributes directly to profit.

Most businesses should review profit margins monthly. Ecommerce stores, retailers, restaurants, and fast-moving businesses may benefit from checking margins weekly to quickly identify pricing or cost issues.