Net margin calculator
Net margin is net profit divided by revenue, after every cost including operating expenses, interest and tax. Revenue of 250,000 with total costs of 235,000 gives a 6% net margin — a typical figure for a healthy small business.
How to calculate net margin
The gap between gross and net margin is the most informative number in a small business. A retailer at 45% gross and 4% net is spending 41 points of revenue on running the place, and that is where any improvement has to come from; a further point of gross margin is worth much less than a point off overheads. Net margin is also the figure most distorted by one-off items, so a single year rarely tells the story; three consecutive years does.
Questions
It varies hugely by sector. Under 5% is thin, around 10% is comfortable for most trades, and above 20% is unusual outside software and professional services.
Gross subtracts only the cost of goods. Net subtracts everything, including overheads, interest and tax.
Net profit after tax does. Some accounts report net margin before tax. Say which you mean when comparing.
Yes, and often is for a growing business investing ahead of revenue. Sustained negative margin without funding is a different problem.
Because overheads sit between them. The size of that gap is the most useful diagnostic in the accounts.