Net Profit Margin Calculator

What each margin points to

• Gross margin reflects pricing and direct costs. If it falls, look at supplier prices, discounting and product mix.
• Operating margin adds the running costs of the business. If gross margin is steady but this falls, overhead is growing faster than sales.
• Net margin is what remains after financing and taxes. A gap between operating and net margin that widens often points to debt costs.

The formulas

Gross margin

Gross margin % = (Revenue − COGS) ÷ Revenue × 100

Operating margin

Operating margin % = (Gross profit − Operating expenses) ÷ Revenue × 100

Net margin

Net margin % = (Operating profit − Interest − Taxes + Other income) ÷ Revenue × 100

Worked example

A company has $250,000 of revenue, $110,000 of cost of goods sold, $85,000 of operating expenses, $5,000 of interest and $10,000 of income taxes.

1. Gross profit: $140,000.00, a 56% margin.
2. Operating profit: $140,000 − $85,000 = $55,000.00, a 22% margin.
3. Net profit: $55,000 − $5,000 − $10,000 = $40,000.00, a 16% margin.

Making the comparison meaningful

Owner-run businesses need one extra check. If you pay yourself through draws rather than wages, those draws do not appear in expenses, and net profit will look better than a business with a paid manager. Add a fair salary for yourself to operating expenses when comparing with other companies or judging whether the business really pays.

Measure over a full year or compare the same month across years when your trade is seasonal. A single strong month can give a misleading picture.