How to Define Operating Margins

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Operating margins for a business should be as high as possible by selling at a high enough price, or buying at a low enough price, to cover the cost of overhead and produce a profit. Learn more about operating margins in business with tips from a certified public accountant in this free video on business and accounting terms.

Part of the Video Series: Business & Accounting Terms
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Video Transcript

Let's talk about operating margins. Every business has a need for profit. We want our margins to be high enough to cover our overhead, and produce a profit. In the case of a sock salesman, or a drug dealer, we want to be able to take something that we buy for a dollar, and sell it for as high a multiple of that dollar, as possible. We're not always that lucky, but in every case, we're interested in the margin being as high as possible. How do we deliver that margin? By selling at a high enough price, or purchasing at a low enough price, in relationship to the selling price.

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