Net Profit Margin

What is Net Profit Margin?

Net Profit Margin is the bottom line percentage. It shows what portion of every revenue dollar actually becomes profit after every single cost is accounted for: COGS, operating expenses, interest, taxes, everything.

Why Net Profit Margin Matters

This is the ultimate efficiency metric. A SaaS company with 80% gross margins but negative net profit margins is spending more on operations than the business model supports. High revenue with low net margins is a volume game that requires scale to work.

For ecommerce founders, net profit margin reveals the true economics after shipping, returns, payment processing, and all the hidden costs that erode gross margins.

Growth vs Profitability Trade-off

Many venture-backed startups intentionally run negative net margins to invest in growth. This is fine if the path to profitability is clear. The danger is never knowing what sustainable margins look like because you have always been in growth mode.

Your SaaS company has:

• Revenue: $3,000,000
• Net Income: $300,000

Net Profit Margin = ($300,000 ÷ $3,000,000) × 100 = 10%

For every dollar in revenue, you keep 10 cents after all expenses. If you can maintain this margin while growing, you are building a sustainable business.