An increase in sales does not always mean that a business is doing good. Very often, we all have come across companies that are doing great in sales but are still struggling to meet their expenses  – because expenses/cost of operations have grown faster than sales.

Monitoring the company’s profit margin in addition to sales is critical in determining if the increase in sales is truly resulting in an increase in profits.

Profit margin is the net income of the company for every dollar in sales and is shown as a percentage. A Profit margin of 15% means the company has a net income of 15 cents for every dollar in sales.

To increase the profit margin, we need to increase the net income.

To increase the net income, we need to reduce the cost of operations

In order to reduce the cost of operations, we need to increase the efficiency in operations.