What Is a Good Profit Margin?
Why there is no single “good” margin and how to think about margin in the context of costs, industry and pricing.
In this guide
There is no universal target
A margin that is healthy for one business may be unrealistic for another. Retail, professional services, manufacturing and software businesses have very different cost structures. Comparing the percentage without looking at the underlying costs can be misleading.
Start with your own numbers
Look at revenue, direct costs, operating costs and the amount you need the business to retain. A margin target should fit the economics of the business rather than being chosen because a number sounds impressive.
Margin can change as costs change
If supplier prices, wages, rent or delivery costs rise while the selling price stays fixed, the margin can fall. Reviewing margin regularly can reveal a problem before it becomes obvious in cash flow.
Use margin with other measures
Profit margin is useful, but it does not answer every business question. Cash flow, customer acquisition cost, stock turnover and return on investment can matter just as much depending on the business.
Try the related tool
If you came here because you need to do the calculation or create something now, you can use the matching KingToolsKit tool and then come back to the guide when you want the explanation.
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