Gross Margin vs. Net Margin vs. Markup
Gross profit margin measures how much revenue remains after the direct costs of producing goods or services (COGS). It excludes overhead, salaries, rent, and taxes. A 40% gross margin means $0.40 of every revenue dollar remains after production costs.
Net profit margin measures profitability after all expenses including operating costs, interest, and taxes. This is the "bottom line" — what the business actually keeps. A healthy net margin depends on industry but 10–20% is considered good for most businesses.
Markup is different from margin: markup is profit as a percentage of cost, while margin is profit as a percentage of selling price. A 67% markup produces a 40% margin. Understanding this distinction prevents significant pricing errors.
Profit Margin Formulas
Gross Margin = (Revenue − COGS) / Revenue × 100%
Net Margin = Net Income / Revenue × 100%
Markup = (Selling Price − Cost) / Cost × 100%
Typical Profit Margins by Industry
| Industry | Gross Margin | Net Margin |
|---|---|---|
| Software (SaaS) | 70–80% | 15–25% |
| Retail (e-commerce) | 30–50% | 3–8% |
| Restaurants | 60–70% | 3–9% |
| Manufacturing | 25–40% | 5–15% |
| Healthcare | 40–60% | 10–20% |
| Grocery / Supermarket | 25–30% | 1–3% |