What is net profit margin?
Net profit margin shows how many cents of profit a business makes from each dollar of sales. It accounts for every cost, so it reflects pricing, efficiency, financing and tax together.
Formula
Net profit margin = [Net income](/glossary/net-income) ÷ Revenue × 100
Example
A company earns $78,750 of net income on $800,000 of revenue. Net profit margin = 9.8%. It keeps about 10 cents of every dollar of sales.
What's a good net profit margin?
It varies widely by industry:
- Grocery retail: often 1% to 3%
- Restaurants: often 3% to 6%
- Professional services: often 10% to 20%
- Software: can exceed 20% once mature
Compare against your own history and sector peers rather than a single benchmark.
Gross vs operating vs net margin
- Gross margin: after direct costs only (see [gross profit](/glossary/gross-profit)).
- Operating margin: after [operating expenses](/glossary/operating-expenses).
- Net margin: after everything, including interest and tax.
Looking at all three shows where profit is being lost.
How to improve it
- Raise prices or reduce discounting.
- Cut supplier and overhead costs.
- Improve product mix toward higher-margin items.
- Refinance expensive debt.
- Use available tax reliefs.