Questions

You can tell vendors, investors, and loan officers that you want to make a difference in the world, but they will be more interested in financial metrics, especially your profit margin. You kept good records and, after doing the math, came up with a net profit margin of 21%. Your friend owns an IT company that installs complicated computer networks for businesses and has a net profit margin of 16%. It does not work that way because the profit margin is industry specific. Business owners make a higher margin in some sectors compared to others because of the economic factors of each industry. If you are in the foodservice business, you might only see net margins of 3.8%. Profit margin does not measure how much money you will make or could make, only how much is made on each dollar of sales. Many new business owners believe you should expect to have a lower profit margin in the beginning. In the service and manufacturing industries, profit margins decrease as sales increase. That is about the time where the business must start hiring more people. Each employee in a small business drives the margins lower. As your sales increase and your business grow, more money comes in. Simply bringing in more cash does not mean you are making a bigger profit. And as your business expands, continue to tend to its margins. Profit margin gauges the degree to which a company or a business activity makes money.
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Answered 3 months ago

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