So you've used a profit margin calculator and found your number. Maybe it's 10%, maybe it's 40%, maybe it's 70%. The next logical question is: "...is that good?"
The answer, frustratingly, is: **it depends.**
A "good" profit margin is entirely dependent on your industry, your costs, and your business model. A 10% margin might be excellent for a grocery store but disastrous for a software company.
Understanding Gross vs. Net Margin
First, let's be clear on what we're measuring. Our calculator determines **Gross Profit Margin**, which is:
(Revenue - Cost of Goods Sold) / Revenue
This is your profit *before* overhead like rent, marketing, salaries, and utilities. **Net Profit Margin** is your profit *after* all those other costs.
A good *general* rule of thumb is that a **10% net profit margin** is considered "average" or "good" for many industries. A 20% net margin is excellent, and a 5% net margin is low.
Average Gross Margins by Industry (Examples)
Gross margins vary wildly because costs (COGS) are wildly different.
- Software (SaaS): Often 80-90%+. The cost to "build" one more copy of software is almost zero.
- Freelance Services (Design, Writing): Often 70-90%. Your main "cost" is your time. Software subscriptions (like Adobe) are usually counted as overhead, not COGS.
- Restaurants: Often 30-40%. The cost of food and ingredients (COGS) is extremely high.
- Retail (Apparel): Often 40-50%. The cost of buying the clothing from the manufacturer is high.
- Grocery Stores: Often 10-20%. This is a high-volume, low-margin business.
How to Improve Your Margin
No matter your industry, you have two primary levers to pull to increase your profit margin:
1. Increase Your Prices. This is the fastest, most effective way. A 5-10% price increase can dramatically improve your margin if your costs stay the same.
2. Decrease Your Costs. Can you find a cheaper supplier for your materials? Can you automate a task you're paying for? Be careful not to sacrifice quality, which could hurt your sales.
Constantly tracking your margin isn't just an accounting exercise—it's the core of building a sustainable, profitable business.