• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
CoinLaw LogoCoinLaw

Bringing Crypto & Finance Closer to You

  • Latest News
  • Statistics
  • About
  • Contact
Subscribe
CoinLaw Logo
Subscribe To Our Newsletter
Home » Finance

What Is Profit Margin? How Do You Calculate It? And Why Does It Matter?

Updated on: June 27, 2025
Steven Burnett
Written By
Steven Burnett
Steven Burnett
Research Analyst
Steven Burnett has over 15 years of experience across finance, insurance, banking, and compliance-focused industries. Known for his deep res... See full bio
LATEST POSTS:
Diversity In The Finance Industry Statistics 2026: Powerful Trends Uncovered
Digital Transformation in Insurance Industry Statistics 2026: Market Shift Now
Digital Transformation in Banking Statistics 2026: Growth, Challenges, and Opportunities
Kathleen Kinder
Reviewed By
Kathleen Kinder
Kathleen Kinder
Senior Editor
Kathleen Kinder brings over 11 years of experience in the research industry, with deep expertise in finance, cryptocurrency, and insurance. ... See full bio
LATEST POSTS:
Optimism Gains as Ether.fi Expands Crypto Cards
Coinbase Expands Loans to XRP, Dogecoin, ADA, LTC
Kresus Raises $13M to Scale Seedless Wallet and Tokenization
Profit margin
As Featured In
FortuneYahoo! FinanceCoinDeskSeeking AlphaCoin Market Cap
Share on LinkedIn ChatGPT Perplexity Share on X Share on Facebook

Running an e-commerce business is not without its challenges, one of which is earning enough cash to keep your doors open. Did you know that in the e-commerce sector, only 20% of businesses survive? This indicates that 80 out of 100 companies are either losing money or breaking even with their expenses. This is why monitoring your profit margin is essential to assess your situation and take action to keep your business afloat.

What Is The Profit Margin?

The profit margin is the percentage of sales income a company retains after all expenses are paid. Simply defined, it calculates how much revenue you receive from a sale you keep. Your company’s financial health improves as your profit margin rises.

There are different types of profit margins, with the following three being the most popular:

  • Net margin (Net profit margin)
  • Gross margin ( Gross profit margin)
  • Operating margin (Operating profit margin)

Here is a thorough explanation of each category.

  • Net Profit Margin

The net profit margin is the organization’s profit after deducting all of its costs, including operating expenses, product price, and interest and tax payments.

Formula for calculating Net Profit: – (Total Revenue – Total Costs) / Total Revenue (x 100).

You may assess your company’s overall success by computing your net margin. A high net margin shows that your business is managing its costs and generating sales very well.

Additionally, you may use net profit margin to assess how well your business is performing compared to its rivals. However, the companies should have nearly the same cost structure and consumer base for the comparison to make sense.

  • Gross Profit Margin

Gross profit margin is the company’s profit after deducting costs associated with manufacturing and selling its service or product.

The cost of goods sold (COGS) must be subtracted from the total revenue in order to calculate gross profit. To calculate the gross margin percentage, divide the sum by the total income and multiply it by 100.

Formula to calculate Gross Profit: (Total Revenue – COGS) / Total revenue (x 100)

It is best to remember that COGS refers only to direct good costs and not indirect expenditures such as rent or office supplies.

You can also calculate the gross profit to determine if your business is profitable and if you need to change prices. If your gross margin is low, it could mean that you need to charge more for an item in order to make it profitable to sell.

What is the Optimal Gross Profit Margin?

You must set fair prices for your products or services to increase your gross profit. Different industries have different optimal gross margin numbers. It is 45.25% of\ online sales, according to the NYU Stern School of Business.

Shopify’s profit calculator can help you determine your products and services’ most profitable selling price. This tool calculates the cost of your merchandise to consumers in order for you to achieve the highest profit margin.

Operating Profit Margin

The operating profit margin demonstrates an organization’s profit after accounting for variable costs (i.e. indirect costs) associated with running your company.

Compared to gross margin, the operational margin considers a variety of other operating costs such as rent, labor costs, utilities, advertising, payroll, insurance, etc.

Moreover, you can gain more understanding of your pretax profit and how operational expenses affect your business’s profitability by calculating the operating margin.

Subtract operating expenses from total revenues in order to calculate operating profit. After that, divide the sum by total income, and multiply it by 100.

Newsletter Img
Don't chase the news. Let us curate it.

You get one weekly briefing with only the stories that matter. If the market is quiet, we skip it.

✅ Join readers from Visa, Vanguard, and the FDIC.

Formula for calculating Operating Profit: – (Total Revenue – COGS + Operating Costs) / Total Revenue (x 100)

What Is A Favorable Profit Margin For Your Business?

Your business’s profit margin will vary depending on your location, customer base, and industry. In general, a net profit margin of 10% is deemed a good margin, a 20% profit margin is considered excellent, and a 5% profit margin is considered poor. If you want to compare your business performance based on net margin and gross margin, you should check out the average profit margin for your industry.

How To Raise The Profit Margin

1. Reduce Operating Expenses

Reducing operating expenses and costs is a quick and efficient strategy to increase profit margin.

Even if these costs differ from one business to the next, you should audit the expenses that are frequently incurred in running a business, such as:

  • Labor costs
  • Licenses
  • Insurance
  • Office space & utilities
  • Maintenance and equipment cost
  • Employee benefits

Next, consider how you may reduce operating costs and how technology might be used to your advantage. For example, if you offer 24/7 customer service through Facebook and have 3 workers who work eight-hour shifts, you can reduce your operating costs by using a chatbot during off-duty hours.

2. Raise The Average Value Of Your Order

The average dollar amount a consumer spends on each purchase at your store is known as AOV (average order value). One easy strategy to raise your profit margin ratio is to increase AOV.

There are several strategies to raise your average order value, including:

  • Create Product Packages Or Bundles: – Product bundles work excellently to raise the perceived value of a consumer’s purchase and help improve the shopping experience. Make product bundles more affordable as a group than as a single item to encourage individuals to make larger purchases.
  • Cross-Sell And Upsell Complementary Products: – You can suggest products that match well with the items a visitor has in their cart rather than just recommending your store’s best-sellers. For example, shaving cream with razors or a mixing bowl for hair dye.
  • Provide Incentives For Minimum Orders: – You can boost your AOV and achieve higher margins by encouraging consumers to spend a minimal amount. Offering free delivery with a minimum purchase is one method to accomplish this, which you can usually set up in Shopify within a few minutes.

3. Be Prepared to Experience A Loss On Certain Orders

It is acceptable for your e-commerce company to lose money on some orders if doing so allows you to get to know your consumers better. Today’s consumers have become so used to receiving mediocre service that they are not surprised when a company attempts to establish a lasting relationship.

How can you invest in the future of your client relationships? Here are a few concepts:

  • Is a consumer dissatisfied with their order? Please give them a partial refund to make up for the disappointing experience.
  • If something cheap item breaks, send the buyer a free replacement immediately without making them deal with the return.
  • If a customer wants to return a large item, send them a replacement right away once they provide the return’s tracking information rather than holding off until the item gets to your warehouse.

These tactics will initially cost a little extra. Still, they will significantly impact you as you develop a passionate and devoted fan following that improves your company’s financial health.

4. Increase Your Product Prices

Many business owners worry that their clients will leave them if they increase their rates. However, if you give customers a wonderful experience and proactively address their problems, a modest price increase can do miracles for your company.

Furthermore, it would be best to consider psychological and creative strategies when pursuing this method. For example, if you are selling a wholesale and retail product, you could maintain the retail price as is while raising the wholesale price by $5. In this manner, consumers would still receive a great price when they purchase wholesale, while your business would benefit from a higher profit margin.

5. Establish a Consumer Loyalty Program

Consumer loyalty programs are proven methods to boost profitability in the service and retail sectors. For example, Sephora has a customer loyalty program with more than 17 million members, contributing to around 80% of the company’s sales.

Instead of investing money in new campaigns, you may quickly boost profit margins by creating a customer loyalty program.

Moreover, you can set up a loyalty program where consumers receive rewards based on a point system for each purchase. Once they have accumulated enough points, allow them to select how to use their points, whether via gift cards or discounts, to aid with the purchase price.

Conclusion

Profit margin is a vital metric for businesses to track. It provides insight into how much profit a company is making and can be used to compare profitability across different companies. Profit margin is essential because it shows how much of each sales dollar is actually being turned into profit.

Monitoring your company’s profit margin might assist you in deciding what actions to take to ensure its survival and growth. You must maintain the consumer experience while doing this. Following these suggestions for raising your profit margin, you can establish a solid foundation for your company and prepare it to withstand any future economic turbulence.

Add CoinLaw as a Preferred Source on Google for instant updates! Follow on Google News
Share ChatGPT Perplexity
Steven Burnett

Steven Burnett

Research Analyst


Steven Burnett has over 15 years of experience across finance, insurance, banking, and compliance-focused industries. Known for his deep research and data analysis skills, Steven transforms complex topics into clear, actionable insights. At CoinLaw, he contributes in-depth articles on financial systems, regulatory trends, and lending practices, helping readers make informed decisions with confidence.

Disclaimer: The content published on CoinLaw is intended solely for informational and educational purposes. It does not constitute financial, legal, or investment advice, nor does it reflect the views or recommendations of CoinLaw regarding the buying, selling, or holding of any assets. All investments carry risk, and you should conduct your own research or consult with a qualified advisor before making any financial decisions. You use the information on this website entirely at your own risk.

Related Posts

Freedom Holding Corp. Nearly Doubles Client Base as Ecosystem Strategy Gains Momentum
Finance

Freedom Holding Corp. Nearly Doubles Client Base as Ecosystem Strategy Gains Momentum

Diversity In The Finance Industry Statistics 2026: Powerful Trends Uncovered
Finance

Diversity In The Finance Industry Statistics 2026: Powerful Trends Uncovered

Bitcoin Crash Hits Galaxy Digital Hard with $482M Q4 Loss
Finance

Bitcoin Crash Hits Galaxy Digital Hard with $482M Q4 Loss

Reader Interactions

Leave a Comment Cancel reply

Primary Sidebar

Connect With Us

facebook x linkedin google-news telegram pinterest whatsapp email
google-preferred-source-badge Add as a preferred source on Google

You Should Also Read

Ripple Cleared for EU Expansion with Full Luxembourg EMI License
GitHub Statistics 2026: What You Must Know Now
Financial Literacy Statistics 2026: What Most Get Wrong Now

Table of Contents

  • What Is The Profit Margin?
  • Formula for calculating Net Profit: – (Total Revenue – Total Costs) / Total Revenue (x 100).
  • Formula to calculate Gross Profit: (Total Revenue – COGS) / Total revenue (x 100)
  • What is the Optimal Gross Profit Margin?
  • Formula for calculating Operating Profit: – (Total Revenue – COGS + Operating Costs) / Total Revenue (x 100)
  • How To Raise The Profit Margin
  • Conclusion
Connect on Telegram

Footer

CoinLaw Logo

Bringing Finance Closer to You.

Connect With Us

Follow Us on Google News

Site Links

  • About CoinLaw
  • Newsletter
  • Privacy Policy
  • Terms and Conditions
  • Disclaimer

Worth Checking

  • Debit Card Statistics
  • NFT Market Growth Statistics
  • Retail Investing Statistics
  • Credit Card Fraud Statistics
  • Most Expensive Crypto Scams
Contact Us
13570 Grove Dr #189,
Maple Grove, MN 55311,
United States
10 a.m. – 6 p.m. | Every day

Copyright © 2024–2026 CoinLaw. All Rights Reserved. Powered by the HODL Force ❤️

  • Privacy Policy
Company
  • About Us
  • Our Team
  • Our Mission
  • Core Values
Discover
  • glossary icon
    Glossary
  • Stats
    Stats Research Process
  • Brand Guide Icon
    Brand Assets
Categories
  • Cryptocurrency
  • Payments
  • Finance
  • Banking
  • Insurance
Cryptocurrency
BitPay Statistics
BitPay Statistics 2026: Market Growth Revealed
DMG Blockchain Statistics
DMG Blockchain Statistics 2026: Growth Insights
Binance User Statistics
Binance User Statistics 2026: Growth Secrets
Northern Data Statistics
Northern Data Statistics 2026: Debt & Growth
Ebang International Statistics
Ebang International Statistics 2026: Growth Signals
Sphere 3D Statistics
Sphere 3D Statistics 2026: Market Secrets
Payments
Digital Remittance Statistics
Digital Remittance Statistics 2026: Market Surge Now
BHIM App Statistics
BHIM App Statistics 2026: Real Numbers, Big Impact
Amazon Pay Statistics
Amazon Pay Statistics 2026: Secrets Uncovered
WeChat Statistics
WeChat Statistics 2026: Mind-Blowing New Data
2Checkout Statistics
2Checkout Statistics 2026: Growth Secrets Unveiled
Debit Card Statistics
Debit Card Statistics 2026: Insights That Matter Now
Finance
Diversity In The Finance Industry Statistics
Diversity In The Finance Industry Statistics 2026: Powerful Trends Uncovered
GitHub Statistics
GitHub Statistics 2026: What You Must Know Now
Financial Literacy Statistics
Financial Literacy Statistics 2026: What Most Get Wrong Now
Decentralized Finance Defi Market Statistics
Decentralized Finance (DeFi) Market Statistics 2026: Must-Know Insights Now
Quantum Cryptography in Finance Statistics
Quantum Cryptography in Finance Statistics 2026: Security or Chaos?
Global Household Savings Statistics
Global Household Savings Statistics 2026: See How Your Country Ranks
Banking
Digital Transformation in Banking Statistics
Digital Transformation in Banking Statistics 2026: Growth, Challenges, and Opportunities
Banking Statistics
Banking Statistics 2026: What You Must Know Now
ATM Statistics
ATM Statistics 2026: Insights You Must See Now
Neobank Industry Statistics
Neobank Industry Statistics 2026: Tap Into Explosive Revenue Secrets
UBS Statistics
UBS Statistics 2026: New Data, Big Surprises Ahead
Deutsche Bank Statistics
Deutsche Bank Statistics 2026: Hidden Trends Exposed Now
Insurance
Digital Transformation in Insurance Industry Statistics
Digital Transformation in Insurance Industry Statistics 2026: Market Shift Now
Auto Insurance Industry Statistics
Auto Insurance Industry Statistics 2026: Growth Secrets
AI in Insurance Industry Statistics
AI in Insurance Industry Statistics 2026: Shocking Growth Insights
AI in Insurance Claims Statistics
AI in Insurance Claims Statistics 2026: How AI Wins Big
US Insurance Industry Statistics
US Insurance Industry Statistics 2026: What’s Surging Now
Property and Casualty Insurance Statistics
Property and Casualty Insurance Statistics 2026: Shocking Trends You Must See Now
Categories
  • Cryptocurrency
  • Investments
  • Compliance
  • Fintech
  • Finance
Cryptocurrency
Binance Upgrades Junior App With More Features
Binance Boosts Junior App With Gifting and Merchant Pay
Phemex Lists Ondo Tokenized Equities With 14 Assets
Phemex Lists Ondo Tokenized Equities With 14 Assets
Optimism Gains As Ether Fi Expands Crypto Cards
Optimism Gains as Ether.fi Expands Crypto Cards
Coinbase Expands Loans To Xrp Dogecoin Ada Ltc
Coinbase Expands Loans to XRP, Dogecoin, ADA, LTC
Reports Say Uae Has Mined Btc
UAE Quietly Mines and Holds 6,782 BTC Worth $453M
Rlusd Gains Rwa Yield As Soil Expands To Xrp Ledger
RLUSD Gains RWA Yield as Soil Expands to XRP Ledger
Investments
Polymarket Acquires Dome To Boost Prediction Api
Polymarket Acquires Dome to Boost Prediction API
Kresus Raises 13m To Scale Seedless Wallet And Tokenization
Kresus Raises $13M to Scale Seedless Wallet and Tokenization
Ledn Brings Bitcoin Loans Wrapped As Bonds To Wall Street
Ledn Brings Bitcoin Loans to Wall Street with $188 Million Deal
Kraken Partners With Magna For Token Management
Kraken Deepens Institutional Crypto Offerings with Magna Deal
Ark Invest Buys 6 9m Coinbase Shares After Recent Sales
ARK Invest Buys 6.9M Coinbase Shares After Recent Sales
Softbank Sells 5 8b Of Nvidia Shares
SoftBank Sells 5.8B Nvidia Stake to Fund OpenAI
Compliance
Kalshi Wins Injunction In Tennessee Sports Case
Kalshi Wins Injunction in Tennessee Sports Case
Hong Kong To Issue Stablecoin Licenses Amid China Crypto Ban
Hong Kong Advances Stablecoin Plans Despite China Ban
Polymarket Sues Massachusetts Over Sports Prediction Ban
Polymarket Sues Massachusetts Over Sports Prediction Ban
China Bans Crypto Issuance By Domestic Firms Overseas
China Bans Crypto Issuance by Domestic Firms Overseas
Wlfi Faces House Probe Over 500m Uae Royal Investment
WLFI Faces House Probe Over $500M UAE Royal Investment
South Korea Probes Zksync Price Surge On Upbit
South Korea Probes ZKsync Price Surge on Upbit
Fintech
Substack Partners With Polymarket For Live Prediction Markets
Substack Partners With Polymarket for Live Prediction Markets
Quantoz Secures Visa Deal For Stablecoin Payments Card
Quantoz Secures Visa Deal for Stablecoin Payments Card
Coinfello Debuts Ai Smart Contract Agent At Ethdenver
CoinFello Debuts AI Smart Contract Agent at ETHDenver Conference
X Plans In App Stock And Crypto Trading
X Plans In App Stock and Crypto Trading With Smart Cashtags Launch
Uk Treasury Taps Hsbc For Bond Tokenization
UK Treasury Taps HSBC for Blockchain Based Sovereign Bond Pilot
Eu Moves Forward With Ecb Digital Euro Proposal
EU Moves Forward With ECB Digital Euro Proposal
Finance
Bitcoin Crash Hits Galaxy Digital Hard With 482m Q4 Loss
Bitcoin Crash Hits Galaxy Digital Hard with $482M Q4 Loss
Ripple Cleared For Eu Expansion With Full Luxembourg Emi License
Ripple Cleared for EU Expansion with Full Luxembourg EMI License
Chainlink Etf By Bitwise Goes Live On Nyse
Chainlink Gets a Wall Street Gateway as Bitwise Spot ETF Hits NYSE
Pharos Foundation Live For Open Finance
Pharos Foundation Debuts to Drive Institutional Adoption of Open Finance
Gemini Posts Lackluster Q3 Results After Ipo
Gemini’s First Post-IPO Report Shows Revenue Growth but Mounting Losses
Coinbase Posts Profit In Q3 Results
Coinbase Posts $433M Profit as Trading and Subscriptions Surge in Q3
Newsletter Img

Too much noise in crypto?

We respect your time. You get one high-impact briefing a week. If the market is quiet, so are we.

✅ Join readers from Visa, Vanguard, and the FDIC.
Newsletter Img

The Weekly Briefing

We track the market 24/7. You get a 5-minute summary. If it’s quiet, we skip it.

✅ Read by pros at Visa, Vanguard, and the FDIC.