Net profit margin
Net margin is what is left after every cost, not just the cost of the goods. It is the figure that tells you whether a business is actually working.
Result
- Net profit margin
- 18.00%
- Net profit
- $45,000.00
- Costs as a share of revenue
- 82.00%
Worked examples
A full-year figure
Revenue $250,000, total costs $205,000.
- net profit = 250,000 − 205,000 = 45,000
- 45,000 ÷ 250,000 = 0.18
18% net profit margin.
What net margin includes
Net margin is measured after everything: cost of goods, salaries, rent, marketing, interest, depreciation and tax. That is what makes it the figure worth watching — gross margin can look healthy while a business loses money.
Because it captures overheads, it is also the figure most sensitive to scale. Fixed costs spread over more revenue lift net margin without any change in pricing.
What counts as a good margin depends entirely on the sector
Grocery retail runs on very thin net margins and makes its return on volume and turnover. Software can run far higher because the marginal cost of another customer is close to zero. Comparing the two tells you nothing useful.
The comparison worth making is against your own previous periods and against direct competitors in the same sector.
Formula
net margin % = (revenue − total costs) ÷ revenue × 100
Frequently asked questions
How do I calculate net profit margin?
Subtract total costs from revenue, divide by revenue, and multiply by 100. Revenue $250,000 with $205,000 of costs gives an 18% net margin.
What is the difference between gross and net profit margin?
Gross margin subtracts only the direct cost of goods sold. Net margin subtracts every cost — overheads, interest, tax — so it is always the lower figure.
What is a good net profit margin?
It depends heavily on sector. Grocery retail may run at 1–3% and do well on volume; software companies can exceed 20%. Compare against your own trend and direct competitors, not across industries.
Can net profit margin be negative?
Yes. If total costs exceed revenue the margin is negative, which simply means the business made a loss over the period.