Net Margin
In short
The bottom line — what percentage of revenue becomes actual profit
Net margin is what's left after EVERY expense — cost of goods, rent, salaries, interest on debt, and taxes. If a company brings in $100 of revenue and keeps $12 after all of that, its net margin is 12%. It's the strictest profitability measure, sitting below gross and operating margin since it also absorbs financing costs and one-time items.
Net margin divides net income — the accounting bottom line — by revenue. Unlike gross or operating margin, it includes interest expense, taxes, and non-operating items, so it reflects a company's whole capital structure and tax situation, not just its core operations. Typical levels vary enormously by sector: grocery retailers often run low single digits, software companies can exceed 25%, and banks are measured on different metrics altogether. Because one-off events — an asset sale, a legal settlement, a tax credit — can swing net income in a single quarter, practitioners track net margin over several years rather than one period, and read it alongside operating margin to separate core-business performance from financing and tax effects.
Formula
Net Margin = Net Income ÷ Revenue × 100Thresholds
- <5
- Thin margins
- 5-15
- Average
- 15-25
- Very profitable
- >25
- Exceptional
Related concepts
- Gross Margin — If you sell a sandwich for $10 and the ingredients cost $3, your gross margin is 70% — the product itself is highly profitable before rent, salaries, or marketing even enter the picture. A supermarket reselling the same sandwich for $10 after paying $8 to stock it has a gross margin of just 20%.
- Operating Margin — After paying for the ingredients AND the rent, salaries, marketing, and everything else it takes to run the business day to day, what percentage of each sales dollar is left? A retailer selling $100 of goods and clearing $8 after all of that has an 8% operating margin — before interest and taxes are even considered.
- Return on Equity (ROE) — If you invest $100 in a business and it earns $20 profit, ROE is 20%. Higher means the company is better at making money with your investment.