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Definition

What is Net Profit Margin?

Profit remaining after all expenses — COGS, operating costs, interest, and tax — as a percentage of revenue.

Net profit margin is the bottom-line profitability metric: what fraction of each revenue dollar the business actually keeps. It sits below gross margin (which only subtracts COGS) and operating margin (which adds operating expenses). Small businesses often quote gross margin in conversation but live or die on net margin — a 60% gross margin business with heavy overhead can easily net under 5%.

Formula

Net Profit Margin (%) = Net Income ÷ Revenue × 100

Example

Revenue of $1,000,000 with $400,000 COGS, $480,000 operating expenses, and $30,000 tax leaves $90,000 net income — a 9% net margin despite a 60% gross margin.

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Related terms

  • Gross Margin — Revenue minus cost of goods sold, expressed as a percentage of revenue.
  • Operating Margin — Profit after COGS and operating expenses, before interest and tax, as a percentage of revenue.
  • Contribution Margin — Revenue minus variable costs — the amount each unit contributes toward fixed costs and profit.