Question 1

What is a good profit margin for a small business?

Accepted Answer

It depends entirely on the industry. For SaaS and software, gross margins of 70%+ are standard and net margins of 10%–25% are healthy. For restaurants, 3%–9% net margin is good. For retail/e-commerce, 2%–6% net margin is typical. For service businesses (consulting, agencies), 15%–25% net margin is achievable. The more important benchmark is improvement over time and comparison to your direct competitors rather than cross-industry averages.

Question 2

What is the difference between markup and margin?

Accepted Answer

Margin is profit as a percentage of selling price. Markup is profit as a percentage of cost. A product costing $60 that sells for $100: margin = ($100−$60)/$100 = 40%. Markup = ($100−$60)/$60 = 67%. These are not interchangeable — a 50% markup is only a 33% margin. Many business owners use markup to price products, then report margin to investors and lenders. When someone says 'we make 40% on every sale,' that's typically margin.

Question 3

How do I price my product to hit a specific gross margin?

Accepted Answer

Use the formula: Price = Cost / (1 − Target Margin). For a 40% gross margin on a product costing $30: Price = $30 / (1 − 0.40) = $30 / 0.60 = $50. A 60% target margin: $30 / 0.40 = $75. The most common mistake is using markup math to set prices when the goal is a margin target — they give very different answers. Our price calculator handles this automatically.

Question 4

What is operating margin and why does it matter?

Accepted Answer

Operating margin (EBIT margin) measures profitability after accounting for all operating expenses including COGS, salaries, rent, and SG&A — but before interest and taxes. It shows how efficiently the core business runs before financing decisions. A business might have a healthy gross margin (60%) but terrible operating margin (2%) due to high overhead. Investors and lenders scrutinize operating margin to assess whether the business model works independently of how it's financed.

Question 5

How do I improve my profit margin?

Accepted Answer

Four levers: raise prices (most impactful if customers are price-inelastic), reduce COGS through supplier negotiation or product reformulation, reduce operating overhead (which costs fixed regardless of volume), or increase volume to spread fixed costs. For most small businesses, price increases of 5%–10% are the highest-leverage move because they drop directly to bottom line — a 10% price increase on $500k revenue with $400k costs improves net income from $100k to $150k, a 50% improvement in profitability. Test price sensitivity before assuming customers will leave.

Metric	Formula	What It Tells You
Gross Margin	(Revenue − COGS) / Revenue	Whether your core product economics work
Operating Margin	EBIT / Revenue	Whether the full business model is efficient
Net Margin	Net Income / Revenue	How much you actually keep after everything

Industry	Gross Margin	Net Margin
Software / SaaS	70%–85%	10%–25%
Professional Services	60%–75%	10%–20%
E-commerce	30%–50%	2%–6%
Restaurant	60%–70% (food cost)	3%–9%
Manufacturing	25%–40%	3%–10%
Grocery Retail	25%–30%	1%–2%

Profit Margin Calculator

What You Should Know

Charts & Projections

Tax Breakdown

State Comparison

Lifetime Wealth Projection

Overview

Gross vs Operating vs Net Margin: Which Number Matters Most?

The Three Margin Levels

Industry Benchmarks (2026)

Break-Even: The Critical Starting Point

Frequently Asked Questions

Sources & Methodology

Mark