Let's talk about profit margins
Straight Up Small Business
Straight Up Small Business
Let's talk about profit margins
Jul 25, 2023 Episode 76
Bec Buchanan

In this episode, we’re talking about profit margins. Now, I know what you may be thinking - attempting to understand margins is daunting and should be left up to the ‘numbers’ people. However, it’s crucial for business owners to understand the profitability of their businesses so that they can continue to grow and make well-informed decisions. 

Today we’ll explore the three types of profit margins you should be become familiar with:

  • Gross margin: profit generated from core operations before deducting operating expenses (Sales less Cost of Goods Sold)
  • Operating margin: profit made from business operations after both direct costs and day-to-day running expenses (Gross Margin less Operating Expenses)
  • Net margin: the profitability of a business after accounting for all income and expenses (Operating Margin plus Other Income less Other Expenses)

I explain these in a way that is simple to understand by taking you through the components that make up these margins. I discuss the different costs within a business and how they’re categorised, so that you can understand which margin they relate to.


Though profit margins may seem confusing at first glance, calculating them is a straightforward process. I give you the simple calculations you need to find out the total of each margin, and explain how to refer to your profit and loss report to get to them. You’ll be surprised to find out how easy it actually is.


Tracking profit margins over time allows you to monitor the financial health of your business and reveal the true picture of where things are at. You'll be able to identify trends and patterns and make better data-driven decisions to optimise your processes.


I hope this episode gives you the clarity and confidence to gain a deeper understanding of your business's financial performance, and help you pave the way for future profitability and success.


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