Calculate gross, operating, and net profit margins. Understand exactly how much of every dollar in revenue becomes actual profit.
Gross Margin = (Revenue − COGS) / Revenue. Shows production efficiency. Operating Margin includes overhead. Net Margin is the bottom line after everything — the truest measure of profitability.
Gross 70–80%, Operating 20–30%, Net 15–25%. High gross margins are essential to fund growth in software businesses.
Gross 30–50%, Operating 5–15%, Net 3–8%. Thin margins require high volume and strict cost discipline.
Gross 50–70%, Operating 15–25%, Net 10–20%. Labour-intensive but capital-light with flexible scaling.
Raise prices, reduce COGS through better suppliers, cut non-essential overhead, improve customer retention to reduce CAC.