What is Narrow Profit Margin?

by Greg DePersio

1 min read

A narrow profit margin refers to a relatively small, tight, or low profit margin. The profit margin is a business’s profit divided by its revenue. For example, if your business collects $100,000 in revenue, and its profits are $20,000, your profit margin is 20%, which means you earn an average of 20 cents for every dollar you collect. Narrow profit margin generally refers to profit margins lower than 5%, but it can be a different figure in certain industries. For instance, dentists tend to have an average profit margin of 15%, so an 8% profit margin would be a narrow profit margin. In some industries, a narrow profit margin is the norm. For example, grocery stores often operate with a profit margin of 1% or 2%. If you want to increase your company’s profit margin, you need to reduce your costs and charge more for your products or services. If a narrow profit margin is the industry standard, it can be helpful to focus on repeat customers and a higher volume of sales to counteract the relatively low profit margin. Knowing your profit margin helps you predict the portion of each sale that translates to profits. It’s also useful for measuring higher or lower profitability.

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