Ever sold something and wondered, “Okay… I made money… but how much did I actually keep?” That, my friend, is where profit margin comes in.
Profit margin tells you how much of your sales is actually profit — you know, the part that goes into your pocket (or towards pizza 🍕). And guess what? It’s super easy to figure out.
Let’s break it down in a way that makes sense — and maybe even fun.
Table of Contents
🙋 What Is Profit Margin, Really?
Profit margin is the percentage of money you keep after covering all your costs.
So, if you sell a product for $100 and it costs you $60 to make, your profit is $40. But how do you turn that into a profit margin?
🧮 The Simple Formula
Here it is — no scary math, promise:
Profit Margin = (Profit ÷ Revenue) × 100
Or, broken down:
Profit = Revenue - Cost
Then: (Profit ÷ Revenue) × 100
🛍️ Real-Life Example
Let’s say you sell handmade candles (smells like success!).
- You sell one candle for $25
- It costs you $10 to make it
Step 1: Find the profit
$25 – $10 = $15 profit
Step 2: Plug it into the formula
($15 ÷ $25) × 100 = 60%
✅ Your profit margin is 60%
That means for every dollar you make in sales, you keep 60 cents. Not bad!
🎯 Why Profit Margin Matters
- It shows how efficient your business is
- Helps you price products smarter
- Tells you if you’re growing or just getting by
- It’s a key number investors and partners look at
Basically: high margin = more money for you.
📦 More Examples
💻 Digital Product
- Sell price: $100
- Cost: $5 (just platform fees)
- Margin: 95% — digital goods are margin superheroes! 🦸
☕ Coffee Shop Sale
- Latte price: $4
- Cost to make: $2
- Margin: 50% — solid, but those beans better be worth it!
🧠 Gross vs. Net Profit Margin (Just So You Know)
- Gross margin: What we just talked about (before other costs like rent, salaries, etc.)
- Net margin: What you actually keep after all expenses — a truer picture of profitability
Both are useful. Gross shows product health, net shows business health.
🧾 Final Thoughts
Profit margin = what you keep.
It’s one of the easiest and most important ways to understand how your business (or side hustle) is doing.
Just remember the golden formula:
(Profit ÷ Revenue) × 100 = Profit Margin %
The higher the margin, the more you take home — and who doesn’t want that?