Profit margin
Profit margin is the share of each sale a business keeps as profit after costs. Gross margin subtracts only what the product costs; net margin also subtracts rent, wages and every other expense.
What profit margin is
Margin is profit divided by revenue, written as a percentage. A coffee that sells for €3.50 and costs €0.70 in beans, milk and cup leaves €2.80, a gross margin of 80%. Net margin is far lower once rent, staff and energy are paid, and it is the number that says whether the business makes money at all.
How it works for a café, salon or restaurant
- A café uses margin to pick a reward: a free coffee costs the beans and milk, not the menu price.
- A salon compares services, because a colour treatment and a quick trim can leave very different margins.
- A restaurant checks dish margins before a promotion, so the discount lands on dishes that can carry it.
Margins also show which products belong on a loyalty card: reward with the items that keep the most of their price.
What to watch
A discount comes straight out of margin, so 10% off a product with a 20% margin gives away half the profit on it. Price rewards at what they cost you, not at what they sell for, and weigh the margin given away against the extra visits it brings.
Posts that use this term
- How to set up a cashback card in a restaurant: percentage, cost and tillSet the percentage from your margin, not from what sounds generous
- Which Loyalty Program Is Right for Your Business? A Practical Guide
- How much does a digital loyalty program cost? From €29.90 a month
- Loyalty without an app: when it works, when an app is better, what it earns
- How much does a café loyalty program cost? One café, month by month