What Is a Good Profit Margin? Explained Simply

Profit margin shows how much of each dollar in sales a company actually keeps after paying its costs. If a company has a 20% profit margin, it keeps 20 cents of every dollar it brings in.

There isn't one universal "good" number, and that trips a lot of people up. A software company might comfortably run a 30% margin because it costs very little to serve each extra customer. A grocery store might run on a 2 to 3% margin and still be a perfectly healthy business, because that's just how thin margins are in that industry.

The better question isn't "is this margin good," it's "is this margin good for this type of business." Always compare a company's margin to its closest competitors, not to companies in a completely different industry.

It's also worth watching the trend over time. A shrinking margin, even from a high starting point, can be an early warning sign worth digging into.