Net Profit Margin Calculator Formula
Understand the math behind the net profit margin calculator. Each variable explained with a worked example.
Formulas Used
Net Profit Margin
net_margin = revenue > 0 ? (net_income / revenue) * 100 : 0Total Expenses
total_expenses = revenue - net_incomeExpense Ratio
expense_ratio = revenue > 0 ? ((revenue - net_income) / revenue) * 100 : 0Variables
| Variable | Description | Default |
|---|---|---|
revenue | Total Revenue(USD) | 1000000 |
net_income | Net Income(USD) | 120000 |
How It Works
How to Calculate Net Profit Margin
Formula
Net Profit Margin = (Net Income / Revenue) x 100
Net profit margin is the ultimate bottom-line measure. It accounts for every cost the business incurs: cost of goods, operating expenses, interest, taxes, depreciation, and one-time charges. Tracking this metric over time reveals whether the company is converting an increasing share of revenue into profit.
Worked Example
A company generated $1,000,000 in revenue and $120,000 in net income.
- 01Net Profit Margin = ($120,000 / $1,000,000) x 100 = 12%
- 02Total Expenses = $1,000,000 - $120,000 = $880,000
- 03Expense Ratio = $880,000 / $1,000,000 x 100 = 88%
Frequently Asked Questions
What is a good net profit margin?
Benchmarks vary greatly by industry. Retail often operates at 2-5%. Financial services may achieve 15-25%. Technology companies frequently see 15-30%. The key is consistent improvement and comparison within your sector.
Why can net margin be lower than gross margin?
Gross margin only subtracts direct production costs. Net margin subtracts everything: operating expenses, interest, taxes, and non-recurring items. The gap between gross and net margin shows the weight of these additional expenses.
Learn More
Guide
How to Calculate Profit Margin
Learn how to calculate gross, operating, and net profit margins step by step. Understand what healthy margins look like across industries and how to improve yours.
Ready to run the numbers?
Open Net Profit Margin Calculator