Why Monitoring Your Profit Margins Matters
As we wrap up the second quarter, it’s time to look beyond just revenue and expenses—it’s time to take a serious look at your profit margins. Tracking margins isn’t just for end-of-year reviews or tax prep. It's how smart business owners stay ahead and make data-driven decisions to grow sustainably.
What Are Profit Margins?
Profit margins show how much of your revenue is actual profit. They tell you how efficiently your business operates. There are two key margins every entrepreneur should track:
Gross Profit Margin = (Revenue - Cost of Goods Sold) ÷ Revenue
Net Profit Margin = Net Income ÷ Revenue
For service-based businesses, gross profit margins should typically be high since overhead costs like materials or inventory are minimal. The problem arises when business expenses—subscriptions, software, payroll, and other overhead—begin to eat into your net profit margin.
Using QuickBooks to Monitor Margins
With QuickBooks Online, you can easily track your margins using custom reports. Run Profit & Loss reports by quarter or month. This gives you insight into how your margins are trending. Seeing the difference between your gross and net profit will help you pinpoint where your money is going—and where you can tighten up.
The more often you review these numbers, the more confident you’ll feel in your pricing, your expenses, and your growth strategy.
FAQ: Tracking Profit Margins in Small Business
Q: How often should I check my profit margins?
A: Ideally, monthly. But at minimum, review them at the end of each quarter.
Q: What’s a healthy net profit margin?
A: It depends on your industry, but generally, 10–20% is considered solid for service-based businesses.
Q: What should I do if my margins are shrinking?
A: Review your operating expenses and pricing strategy. Look for recurring costs you can cut or adjust.
Cheers to closing out Q2 strong!
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