Profit Margin
The amount by which revenue from sales exceeds costs in a business, usually expressed as a percentage.
Profit Margin is one of the commonly used profitability ratios to gauge the degree to which a company or a business activity makes money. It represents what percentage of sales has turned into profits.
Types of Profit Margin
- Gross Profit Margin: Revenue minus Cost of Goods Sold (COGS). Useful for analyzing production efficiency.
- Net Profit Margin: Revenue minus ALL expenses (operating costs, interest, taxes). The “bottom line” profitability.
Context in Digital Marketing
High-margin services (like legal consulting or cosmetic dentistry) can afford higher acquisition costs. Low-margin businesses (like dropshipping) must rely on high volume and very efficient, low-cost traffic.
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Related Concepts
Lifetime Value (LTV)
The total revenue a business can expect from a single customer account throughout their entire relationship.
A/B Testing
A method of comparing two versions of a webpage against each other to determine which one performs better.
Above the Fold
The portion of a webpage that is visible without scrolling.