How to Figure Out Your Margins
A brief explainer on how to calculate your profit margin and what it means for your business.
By Joe Worth •
Opinions expressed by Entrepreneur contributors are their own.
Q: How do I figure out my margins?
A: For decades, maybe even centuries, business owners were taught to shoot for a profit margin of 10 percent. I don't know where that number came from, but I can tell you it's meaningless. As evidence, consider that Amazon barely makes any profit, while Apple's margins are in the 40 percent range. Both companies, as you know, are considered highly successful.
Profit margin is the ratio of profit to sales. The profit part of the equation can be measured two ways: gross, a useful metric for determining efficient use of labor and/or materials in production; and net, often used to compare the health of companies within one industry.
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