What this calculator does
Net profit margin is the percentage of revenue that remains as profit after absolutely everything has been deducted: cost of goods, operating expenses, interest on debt and tax. It is the bottom-line measure of profitability, sitting well below gross margin in the layers of a profit and loss statement.
This is a different figure from a simple cost-versus-price margin on a single sale. A product can carry a healthy margin over its unit cost and still leave the business with a thin, or negative, net profit margin once rent, salaries, marketing, interest and tax are all accounted for.
The formula
Divide net income (profit after every expense, including tax) by total revenue, then express the result as a percentage. Total expenses implied by that gap are also shown, as revenue minus net income, for a sense of how much was deducted along the way.
| Term | Meaning |
|---|---|
| Net income | Profit remaining after cost of goods, operating expenses, interest and tax, sometimes called the bottom line. |
| Revenue | Total sales generated over the period being measured, before any costs are deducted. |
| Net profit margin | Net income expressed as a percentage of revenue: (net income ÷ revenue) × 100. |
The inputs explained
| Field | What to enter |
|---|---|
| Total revenue ($) | Total revenue for the period, before any costs are subtracted. |
| Net income (after all expenses, interest and tax) ($) | Net income for the same period, after every expense including tax and interest. This can be negative if the business made a loss. |
When to use it
Comparing overall profitability across businesses
Net profit margin strips out differences in scale between businesses, so a small operation and a much larger one can be compared on the same footing, provided both figures are calculated consistently.
Tracking profitability over time
Revenue can grow while net profit margin shrinks, if costs are growing faster than sales. Watching the margin, not just the revenue line, catches that before it becomes a problem.
Distinguishing a pricing problem from a cost problem
A falling net profit margin with a stable gross margin usually points to rising overheads, interest or tax, rather than a pricing issue on the product itself, since the gap between the two margins is where those costs sit.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How net profit margin changes as net income changes, at a fixed revenue
A fixed $500,000 in revenue, across a range of net income outcomes.
| Net income | Net profit margin | Total expenses implied |
|---|---|---|
| $10,000 | 2.00% | $490,000.00 |
| $25,000 | 5.00% | $475,000.00 |
| $45,000 | 9.00% | $455,000.00 |
| $75,000 | 15.0% | $425,000.00 |
| $100,000 | 20.0% | $400,000.00 |
| $150,000 | 30.0% | $350,000.00 |
How net profit margin changes as revenue changes, at a fixed net income
A fixed $45,000 in net income, across a range of revenue levels.
| Revenue | Net profit margin | Total expenses implied |
|---|---|---|
| $150,000 | 30.0% | $105,000.00 |
| $250,000 | 18.0% | $205,000.00 |
| $450,000 | 10.0% | $405,000.00 |
| $600,000 | 7.50% | $555,000.00 |
| $900,000 | 5.00% | $855,000.00 |
| $1,500,000 | 3.00% | $1,455,000.00 |
Questions
What is net profit margin?
The percentage of revenue left as profit after every cost has been deducted, including cost of goods, operating expenses, interest and tax. It is calculated as net income divided by revenue, times 100.
What is the difference between net profit margin and gross margin?
Gross margin only deducts the direct cost of the goods or services sold, leaving operating expenses, interest and tax untouched. Net profit margin deducts all of those as well, so it is always lower than or equal to gross margin for the same business.
What is a good net profit margin?
It varies enormously by industry. Businesses with high fixed costs or thin per-unit pricing, such as grocery retail, often run net margins in the low single digits, while software or professional services businesses can sustain net margins of 20% or more.
Can net profit margin be negative?
Yes. A negative net profit margin means the business spent more than it earned once every cost, including tax, is accounted for, which is a straightforward net loss for the period.
For a simple cost-versus-selling-price margin on a single product instead, see the margin calculator. For margin alongside markup on the same unit, see the margin and markup calculator.