Gross, operating, and net margin — three numbers every business owner needs to know cold. Enter your revenue and costs to see all three at once.
Gross margin tells you how efficiently you're producing or delivering your product or service — it's revenue minus the direct cost of what you sold. A retail business might target 40–60% gross margin. A SaaS company might run 70–80%. A restaurant might survive on 60–70% gross margin but only 5–10% net margin after labor, rent, and overhead.
Operating margin strips out taxes and financing costs to show how profitable the core business is. Net margin is what actually lands on the bottom line after everything — the number that tells you if the business is actually worth running at this scale.
Industry benchmarks vary wildly. Don't compare your restaurant's net margin to Amazon's. Compare it to other restaurants. The averages for your industry are the only benchmarks that matter.
It depends entirely on the industry. Software companies often achieve 20–30% net margins. Grocery stores operate on 1–3%. Professional services firms land in the 15–25% range. The better question is: what does a healthy business in your specific industry look like? Use your industry's average as the floor, not the target.
Gross margin only subtracts the direct cost of delivering what you sold — materials, labor that goes into the product, direct manufacturing costs. Net margin subtracts everything: overhead, rent, salaries, marketing, interest payments, and taxes. Both matter. Many businesses with strong gross margins get destroyed by overhead.
You have four levers: raise prices, reduce COGS, cut operating expenses, or grow volume to spread fixed costs. Most owners reach for cost-cutting first, but pricing is often the fastest and most impactful lever. A 5% price increase on $500K revenue adds $25K directly to the bottom line — with no additional cost whatsoever.
EBITDA — earnings before interest, taxes, depreciation, and amortization — is how most businesses are valued when they're sold. It's a proxy for operating cash flow. A business generating $500K EBITDA in a 4x industry might be worth $2M. Understanding this number matters even if you're not planning to sell — it tells you how efficiently the core operations run independent of financing decisions.