Profit margin (calculation)
Profit margin is profit divided by revenue, times 100. There is a gross profit margin (bigger) and a net profit margin (smaller).
Gross profit margin shows what portion of sales income you can keep in the business
How to calculate profit margins
Example of profit margin calculations
Let’s say your business makes $20,000 by cleaning offices. It costs you $8000 to provide those services, so your gross profit is $12,000. You spend another $3000 on operating expenses and $4000 on taxes, so your net profit is $5000.
Here’s how to work out your margins.
See related terms
Profit & Loss template
Download Xero’s profit and loss statement template to show how much money you business is making
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.