How to Calculate Business Profit Margin (with Examples)

Step 1: Understand each margin

Type	What it tells you	Formula
Gross margin	How much you keep after paying for goods/services sold	(Revenue – Cost of Goods Sold) ÷ Revenue
Operating margin	How much remains after overhead like rent and payroll	(Operating Income ÷ Revenue)
Net margin	The final profit after all expenses and taxes	(Net Income ÷ Revenue)

Step 2: Example — a coffee shop

Maria owns a small coffee shop:

Revenue: $200,000
Cost of beans, cups, and supplies: $80,000
Rent and payroll: $70,000
Taxes and fees: $10,000

Margin Type	Calculation	Result
Gross	($200k – $80k) ÷ $200k	60%
Operating	($200k – $80k – $70k) ÷ $200k	25%
Net	($200k – $80k – $70k – $10k) ÷ $200k	20%

So Maria keeps 20 cents in true profit for every dollar she earns.

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Step 3: How to improve margins

Review pricing: Even a 5% price increase can lift profit if demand stays steady.
Reduce supplier costs: Negotiate or buy in bulk.
Automate: Accounting and inventory tools reduce manual work and human error.

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