Why Every Small Business Should Know Its Profit Margin

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In simple terms, profit margin is the income left over as profit after all expenses have been deducted. It is the money you keep after covering the costs of producing and selling your products or services.

Understanding the different types of profit margins can help you get a clearer picture of your company's financial health:

Gross profit margin focuses on the difference brazil business email list between the revenue generated by the sale of your products (cost of goods sold) and the amount you spent to acquire or produce those products.
Operating margin goes a step further by including operating expenses - such as labor costs, transportation and other day-to-day business expenses - in addition to the cost of goods sold.
Net profit margin offers the most comprehensive view by accounting for all expenses, including taxes, interest, and operating costs, along with the cost of goods sold. Essentially, it's the amount left after deducting all costs associated with running your business.
Knowing your profit margins also provides additional insight into key aspects of your business, such as:

Pricing strategy. High margins indicate that you have found the right balance: pricing your products or services high enough to cover costs and generate profits, while still being attractive to customers.
Financial health. A healthy profit margin is a clear indicator that your company is financially stable. It shows that you are not only covering your expenses, but also generating a surplus of funds that you can reinvest in the company for growth. This financial strength is essential for long-term success and provides assurance to investors, banks and partners that your company is well-managed and sustainable.