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Net Profit Margin
The percentage of revenue that becomes actual profit after all expenses, taxes, and costs are deducted.
Formula
Net Profit = Revenue - All Expenses (COGS + Operating + Interest + Taxes)
Net Profit Margin = (Net Profit / Revenue) × 100
Definition
What is Net Profit Margin?
Net profit margin is the ultimate measure of profitability. It shows what percentage of every dollar in revenue becomes actual profit after everything is paid: costs, expenses, interest, and taxes.
Net Margin Benchmarks
SaaS companies at scale often achieve 15-25% net margins. Ecommerce typically runs 5-10%. Early-stage startups often have negative net margins while investing in growth.
Net Margin vs Gross Margin
Gross margin shows production efficiency; net margin shows overall business efficiency. A company can have great gross margins but poor net margins if operating expenses are too high.
Example
Annual P&L summary:
- Revenue: $1,000,000
- Gross Profit: $700,000 (70% margin)
- Operating Expenses: $550,000
- Interest: $20,000
- Taxes: $30,000
Net Profit = $700K - $550K - $20K - $30K = $100,000
Net Margin = $100K / $1M = 10%
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