Profit Margin Formula

The net profit margin tells you the profit that can be gained from total sales, the operating profit margin shows the earnings from operating activities, and the gross profit margin is the profit remaining after accounting for the costs of services or goods sold.

Net Profit Margin =
Revenue - Cost

For example, if your cost of expenses is $100.00, and your revenue is $160.00 then,

160 - 100
= 37.5%

Using Profit Margin

The profit margin has become the globally adopted standard measure of the profit-generating capacity of a business and is a top-level indicator of its potential. It is one of the first few key figures to be quoted in the quarterly results reports that companies issue.

Profit margins are a significant consideration for investors. Investors looking at funding a particular startup may like to assess the profit margin of the potential product/service being developed.