What is High Profit Margin?

By QuickBooks Canada Team

1 min read

High profit margin means that you make a high amount of money on an item compared its cost. By contract, low profit margin indicates that you make a low amount of money compared to an item’s cost. For example, imagine that you own a small software company that develops and sells technical software for which customers pay a lot of money. If the cost to produce the software is relatively low, you probably have a high profit margin. Though there are exceptions, luxury retail stores typically have a high profit margin, whereas dollar stores have a low profit margin. Profit margin usually refers to net profit margin, meaning the amount of money earned on each unit sold after you subtract all expenses. When you’re starting a business, it’s important to understand that its potential high profit margin doesn’t tell the whole story; you have to take all expenses into account to get a real sense of whether a seemingly high-profit-margin business idea will make money. For example, jewellery typically is considered a high-profit-margin business, but if you’re opening a jewellery store at a mall, your actual profit margin could be low if you have to pay for pricey mall rents and hire full-time employees. Knowing whether an item has a high profit margin is a good place to start, but take expenses such as production and marketing costs into consideration as well.

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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