Gross profit = revenue − cost of goods sold. Gross margin % = gross profit ÷ revenue. Net profit = gross profit − operating expenses. Net margin % = net profit ÷ revenue. Higher margins mean more of every dollar in revenue stays as profit.
Gross margin only accounts for the direct cost of producing what you sell (cost of goods sold). Net margin goes further and subtracts your operating expenses too — rent, software, marketing, salaries not tied directly to production. A healthy gross margin with a weak net margin usually means overhead is eating your profit.
COGS is anything directly tied to producing the product or delivering the service: raw materials, manufacturing labor, wholesale cost of items you resell, or direct contractor costs for a service job. It does not include rent, marketing, or your own salary — those go under operating expenses.
There's no single "good" margin — it depends heavily on industry. Grocery and retail businesses often run on net margins of just a few percent because of high volume and thin per-item markup, while software or service businesses can see net margins of 20% or more since there's little cost of goods sold. Comparing your margin to your specific industry's typical range is more useful than comparing to a generic benchmark.
What's a "good" profit margin? It depends heavily on industry. Retail often runs 20-50% gross margin, restaurants 60-70% gross but thin net margins (3-9%), and software/SaaS businesses can see 70-90% gross margins. Compare against your specific industry, not a universal number.
Why is my net margin negative even though gross margin looks fine? This usually means operating expenses are too high relative to revenue — common in early-stage businesses still building volume. Track it monthly; it should trend toward positive as revenue scales faster than fixed overhead.
Should I price based on margin or markup? Margin tells you what percentage of revenue is profit. Markup tells you how much you added on top of cost. They answer different questions — use our Markup Calculator if you're setting a price from cost.