What Is Margin?
Margin is the difference between what it costs to provide a product or service and the price it sells for, usually expressed as a percentage of revenue. It measures profitability and comes in several forms — gross, operating, and net margin.
What margin is and why it matters
Margin answers "how much of each sales dollar do we keep?" at different points on the income statement. Gross margin subtracts only the cost of goods sold; operating margin also subtracts operating expenses; net margin subtracts everything, including interest and taxes. Because margins are percentages, they let you compare profitability across companies of different sizes and track efficiency over time. Margin is often confused with markup — a crucial distinction, since the same dollar profit produces a smaller margin percentage than markup percentage.
A worked example
A product costs $60 and sells for $100. The gross profit is $40. Margin is expressed against the selling price: $40 ÷ $100 = 40% gross margin. Markup, by contrast, is expressed against the cost: $40 ÷ $60 = 67% markup. Same $40 profit, two different percentages — which is exactly why confusing the two leads to underpricing.
How firms handle it today
Firms calculate margins from the income statement and use them in reporting and advisory conversations, benchmarking against prior periods and industry norms.
Related terms
- Gross margin
- Markup
- Net income
- Revenue
- COGS
FAQ
What's the difference between margin and markup?
Margin is profit as a percentage of the selling price; markup is profit as a percentage of the cost. The same profit yields different percentages.
What are the main types of margin?
Gross margin, operating margin, and net margin — each subtracting more costs as you move down the income statement.
Why are margins expressed as percentages?
So profitability can be compared across businesses of different sizes and tracked consistently over time.