Net profit margin is one of the most important financial metrics for any business. It tells you how much of your revenue becomes actual profit after all expenses are deducted. In simple terms, it’s a snapshot of how efficiently your business is turning sales into profit.
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🙋♀️ What is Net Profit Margin?
Net profit margin is the percentage of revenue left over after all expenses, taxes, interest, and other costs have been subtracted. It gives a clear view of how profitable your business truly is.
🧮 Formula to Calculate Net Profit Margin
Here’s the formula:
Net Profit Margin (%) = (Net Profit ÷ Revenue) × 100
Where:
- Net Profit = Revenue – Expenses
- Revenue = Total income from sales or services
Example:
If your net profit is $20,000 and your total revenue is $100,000:
→ (20,000 ÷ 100,000) × 100 = 20% Net Profit Margin
✨ Why It Matters
- Reveals your company’s true profitability
- Helps investors assess financial health
- Useful for benchmarking against competitors
- Guides decision-making for cost-cutting and pricing
📋 Real Example
- Revenue: $250,000
- Expenses: $200,000
→ Net Profit = $50,000
→ Margin = (50,000 ÷ 250,000) × 100 = 20%
💡 Quick Tips
- Use accurate accounting for both revenue and expenses
- Aim for a healthy margin in your industry (10–20% is common in many sectors)
- Compare margins over time to spot trends
- Watch for rising expenses cutting into your margin