Finance & Accounting
Definition
Net margin (also net profit margin) is net income divided by revenue, expressed as a percentage. It represents the percentage of each revenue dollar that becomes profit after all expenses — COGS, operating expenses, interest, and taxes. It is the bottom-line measure of a company's profitability.
Net margin = Net Income ÷ Revenue × 100. Net income is calculated after subtracting COGS, operating expenses (R&D, S&M, G&A), depreciation and amortization, interest expense, and income taxes. Net margin benchmarks vary dramatically by industry: software companies may achieve 15–30%+; retail 2–5%; restaurants 3–9%; professional services 10–20%. Net margin can be misleading without context — high-growth companies often run negative net margins while investing in growth, and net margin can be artificially inflated by one-time gains. Analysts frequently adjust for non-recurring items to calculate 'adjusted net margin.' The path from gross margin to net margin reveals how efficiently a company converts revenue to profit after all overhead and capital costs.
Net margin tells you whether your business actually makes money after all costs — not just whether it has pricing power. Understanding the gap between gross margin and net margin reveals where costs are consuming value: excessive G&A, underperforming sales efficiency, or high interest burdens. A CFO or financial advisor can model the levers that improve net margin without sacrificing growth.