profit margin

Meaning

Profit margin is a ratio that shows how much money a company makes compared to its sales. It is expressed as a percentage and helps businesses understand how efficiently they are managing their expenses. A high margin means the company is quite profitable, while a low margin suggests high costs relative to revenue.

Examples

• We need to increase our prices to maintain a healthy profit margin.

  We need to increase our prices to maintain a healthy profit margin.

• The software industry typically enjoys a much higher profit margin than retail.

  The software industry typically enjoys a much higher profit margin than retail.

• Our profit margin dropped last quarter because of rising shipping costs.

  Our profit margin dropped last quarter because of rising shipping costs.

• If we can cut manufacturing costs, our profit margin will improve.

  If we can cut manufacturing costs, our profit margin will improve.

• They are operating on a very thin profit margin, so any mistake could be costly.

  They are operating on a very thin profit margin, so any mistake could be costly.

Common Mistakes

• ✗ The company has a high profit margin of $5,000.

  ✓ The company has a high profit margin of 25%.

  Profit margin is represented as a percentage or ratio, not as a specific currency amount. The currency amount is simply called the profit.

• ✗ We want to grow our profit margin.

  ✓ We want to increase our profit margin.

  While it is common to say 'grow a business', we typically 'increase', 'raise', 'improve', or 'expand' a profit margin.

Related Expressions

Practice

• A high ___ means the company keeps more money from each dollar of sales.

  💡 Two words. It is written as a percentage.

  Show answer

  profit margin

• Supermarkets usually run on a very tight ___.

  💡 They make small profits per item but sell in high volumes.

  Show answer

  profit margin