The net profit margin formula
Net profit margin is the share of revenue that survives as bottom-line profit after every expense: net margin% = net income ÷ revenue × 100. Net income is what is left after cost of goods sold, overhead, salaries, interest, and taxes are all subtracted, so this margin is the most complete measure of profitability. Where gross margin shows production efficiency, net margin shows how efficiently the whole business turns sales into profit.
How to use this calculator
Enter your net income (profit after all expenses and taxes) and your total revenue. The tool returns your net profit margin percentage. Because net income can be negative when a business loses money, the margin can be negative too — a sign that costs exceed sales. Compare it with gross margin to locate where profit is being lost. Per-unit profitability is clearer in the contribution margin calculator.
Worked example and benchmarks
With $1,500 of net income on $10,000 of revenue: net margin = 1,500 ÷ 10,000 × 100 = 15%. What counts as good varies widely by industry:
| Net income | Revenue | Net margin |
|---|---|---|
| $500 | $10,000 | 5% |
| $1,500 | $10,000 | 15% |
| $2,500 | $10,000 | 25% |
These figures are an estimate for general information only and are not financial advice; consult a qualified professional before making money decisions. To judge what the business returns on money invested, use the ROI calculator.
Frequently asked questions
- How do I calculate net profit margin?
- Divide net income by revenue and multiply by 100. For $1,500 of net income on $10,000 of revenue, the net profit margin is 15%.
- What is the net margin on $1,500 income and $10,000 revenue?
- It is 15%: 1,500 ÷ 10,000 × 100. That means 15 cents of every revenue dollar is bottom-line profit.
- Why is net margin lower than gross margin?
- Net margin subtracts all expenses — overhead, salaries, interest, and taxes — while gross margin subtracts only the direct cost of goods sold, so net is always lower.
- Can net profit margin be negative?
- Yes. If total expenses exceed revenue, net income is negative and so is the margin, indicating the business is operating at a loss.
- Should I use monthly or annual figures?
- Either works, as long as net income and revenue cover exactly the same period. Mixing a single month of profit with a full year of revenue is the most common mistake here and makes the margin look far worse than it really is.