Calculate your net profit and net profit margin from total revenue and total expenses.
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Net profit is Total Revenue minus Total Expenses (including cost of goods sold, operating costs, interest, and taxes). Net profit margin expresses that profit as a percentage of revenue: Net Profit ÷ Revenue × 100.
For example, 100,000 in revenue with 80,000 in total expenses leaves 20,000 in net profit, a 20% net profit margin.
Net profit margin accounts for every expense the business has, while gross margin only subtracts the direct cost of goods sold. Net margin is always lower than (or equal to) gross margin, since it reflects the business's full cost structure.
Confusing net profit margin with gross margin, net margin subtracts every expense, while gross margin only subtracts cost of goods sold, using the wrong one when comparing businesses skews the comparison.
Comparing net margin across industries without adjusting for structural differences, a thin-margin grocery business and a high-margin software business are not directly comparable on this figure alone.
Forgetting to include one-time or non-operating expenses in total expenses, leaving them out inflates net profit margin above what the business's ongoing operations actually support.
Include everything: cost of goods sold, operating expenses, interest, and taxes. This calculator produces net profit margin, the bottom-line figure, not gross margin.
It varies widely by industry. Retail and grocery often run on thin margins of a few percent, while software and services businesses often see margins of 20% or more. Compare against your specific industry rather than a universal benchmark.
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