What does "profit margin" refer to in a business?

Profit margin refers to the difference between the cost of producing a product and its selling price, which is a key indicator of a company's profitability. This measure helps businesses understand how much money they retain from each sale after covering production costs. A higher profit margin indicates that a company can keep more profit from its sales, which is essential for sustainable growth and financial health.

In this context, profit margins can be expressed in absolute terms (the dollar amount) or as a percentage of the selling price, providing insights into the effectiveness of pricing strategies and cost control. Understanding profit margins allows businesses to make informed decisions about pricing, operational efficiencies, and resource allocations, ultimately contributing to their overall success.