The term ‘profit margin’ refers to the percentage of profit that a company generates for each dollar of sales. Example: 20% profit margin means that the company generates $0.20 of profit for every dollar of products or services it sells. Software startups and SaaS startups typically have higher profit margins compared to businesses that sell physical products. Profit margins are used by creditors, and investors to determine a company’s financial health, management’s skill, and growth potential.