Understanding Your Profit Margins

What You Keep Is More Important Than What You Make 

It’s easy to get caught up in revenue. The big number that feels like success. But what truly matters isn’t how much money comes in… it’s how much you keep. That’s where profit margin comes in.

This week, we’re digging into what profit margin really means, how to calculate it, and how it should guide both your pricing strategy and spending decisions.

Gross Profit vs. Net Profit: What’s the Difference?

• Gross Profit is what’s left after you subtract the cost of goods sold (COGS) from your service and retail sales. It shows how much money is made before operating expenses.

  Formula: Gross Profit = Revenue – COGS

• Net Profit is what remains after all business expenses are taken out — rent, payroll, backbar, software, taxes, etc. It shows your actual earnings.

  Formula: Net Profit = Revenue – (COGS + Operating Expenses)

Think of gross profit as the money your services and products generate, and net profit as what you actually take home after running the business.

What’s a Healthy Profit Margin?

• Gross Profit Margin: Typically 80–85% in service-based salons, since labor is a larger cost than products.

• Net Profit Margin: A 15–20% net margin is a strong indicator of a healthy, sustainable business.

If your net margin is under 10%, it’s time to look closely at expenses, pricing, or systems that may be draining profit.

Why Margins Should Guide Your Pricing Strategy

When you understand your margins, you stop pulling prices out of thin air and start building a structure that supports real profitability.

• Are you pricing high enough to cover COGS, labor, and still leave room for profit?

• Does every price on your menu reflect the time, skill, and resources it requires?

• Are retail sales adding healthy profit, or just taking up shelf space?

Knowing your margins gives you the confidence to raise prices without guilt, offer promotions with strategy, and say “yes” to expenses that move the needle, not just add noise.

Margin Awareness = Smarter Spending

With clear profit targets in place, your spending becomes intentional, not emotional.

Before every major purchase, ask:

• Does this help us generate more revenue?

• Will this expense increase efficiency or retention?

• Will this support a stronger client experience and improve our bottom line?

When you lead with margin awareness, you shift from chasing growth to creating it.

Final Thoughts: Run It Like a CEO

You didn’t step into ownership to just stay afloat. You’re here to build something profitable and impactful. And that starts with knowing your numbers.

Gross and net profit margins aren’t just accounting terms. They’re the pulse of your business. Learn them. Track them. Protect them.

Because busy is optional. Profitable is intentional.