Question 1

What is the difference between profit margin and markup?

Accepted Answer

Profit margin is the percentage of revenue that is profit (profit / revenue × 100), while markup is the percentage added to cost to get the selling price (profit / cost × 100). For example, if you buy something for $60 and sell it for $100, the profit margin is 40% but the markup is 66.7%.

Question 2

What is a good profit margin?

Accepted Answer

A good profit margin varies widely by industry. Software companies often see 70–90% gross margins, retail businesses typically run 25–50%, and food service averages 3–9%. Generally, a net profit margin above 10% is considered healthy for most industries.

Question 3

How do I calculate profit margin from revenue and cost?

Accepted Answer

Subtract your cost from your revenue to get gross profit. Then divide gross profit by revenue and multiply by 100 to get the profit margin percentage. Formula: Profit Margin = ((Revenue − Cost) / Revenue) × 100.

Question 4

Why is profit margin more useful than gross profit alone?

Accepted Answer

Gross profit is a dollar amount, so it doesn't tell you how efficient your pricing is. Profit margin expresses profit as a percentage of revenue, making it easy to compare across products, time periods, or competitors regardless of scale.

Question 5

Can profit margin be negative?

Accepted Answer

Yes. A negative profit margin means you are selling a product or service for less than it costs to produce. This happens when costs exceed revenue and indicates a loss on each sale. Sustained negative margins are unsustainable without other revenue sources.

Industry	Gross Margin
Software / SaaS	70–90%
Financial Services	50–70%
Healthcare / Pharma	40–60%
Manufacturing	25–35%
Retail (General)	25–50%
E-commerce	20–45%
Construction	15–25%
Food Service / Restaurants	3–9%
Grocery Stores	1–3%

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