Dictionary

Margin

“The amount left after subtracting a defined cost from revenue, often expressed as a percentage of revenue.”

Why margin matters to a first-time founder

Margin shows how much revenue remains to cover other costs or become profit. Founders use it to test pricing and affordability of growth. The word is incomplete unless you state which costs are subtracted, such as gross, contribution or operating margin.

Examples of margin

A product sells for $100 and has $60 of direct cost. The amount left is $40, and the margin is ($100 − $60) ÷ $100 × 100 = 40%. Shared overhead and tax may still reduce the company’s final profit.

Common misunderstanding

Margin is not markup. Margin divides the amount left by selling price, while markup divides it by cost. In the example, the $40 amount is a 40% margin but a 66.7% markup on the $60 cost.

When to use it

Use margin when setting prices, comparing products or checking whether revenue growth creates enough value. Name the margin type and use the same cost definition across periods. For a very early product, validate actual fulfilment costs before trusting the percentage.