Margin Definition
What is margin? When you hear the word “margin,” it might make you think of the edge of a page or the space between two lines of text. But in business, margin has a very different meaning.
In business, your margin is the difference between your revenue and your costs. To put it another way, it’s the amount of money you have left over after you pay all of your expenses.
For example, let’s say you own a bakery. You sell each muffin for $2 and it costs you $1 to make each muffin. That means your margin on each muffin is $1. And if you sell 100 muffins in a day, your total margin for that day would be $100.
margins can be expressed as a percentage of revenue. In our example above, the bakery’s margin would be 50%. To calculate that, just divide the margin ($1) by the revenue ($2).
Most businesses have margins that are much lower than 50%. In fact, many businesses operate on slim margins – which means they don’t have much room for error. A small drop in sales or an increase in costs can quickly eat into profits (or turn a profit into a loss).
