Net Profit Margin Calculator

Net profit margin allows you to understand how much profit your business generates after deducting all of your business expenses (ex: taxes, interest, overhead costs).

It can also help you with:

• Understanding how efficient and profitable your business is
• Determining how financially healthy your business is in the eyes of investors, stakeholders or lenders.
• It can help you determine where you need to spend time focusing, such as should you be raising prices or reducing expenses.

The difference between gross profit margin vs. net profit margin is the following:

• Gross profit margin – Allows you to see your businesses revenue after subtracting your cost of goods sold.
• Net profit margin – Allows you to see your businesses revenue after subtracting your operating costs, taxes, interest and all other expenses.

A healthy net profit margin will vary industry to industry. For example, a manufacturing company will have a lot higher operating expenses and may see a different margin than a service-based business.

An example is a restaurant which sees anywhere from 2-7% due to restaurants have very high operational costs such as staff, food product, rent, etc.

Taxes directly affect your net profit margin, as its considered in the total calculation. By working with a Tax Accountant you can look at ways to reduces taxes since it is an on-going expense.

Whether you’re obtaining a loan from an investor, private lender or a bank, they will a lot of times look at your net profit margin to determine how much risk they’re taking, and will often times calculate an interest rate based on that.

If your net profit margin doesn’t look health you’re best to work on improving this before reaching out to an investor or lender for financial assistance.

Work with a financial professional or an accountant for help, as well as industry experts in your field to help with the below:

• Increase prices: By raising prices you can very easily improve your net profit margin. While this may sound easy, find a price that you’re comfortable with as well as your clients. You can use competitors to determine how much you can raise, or find ways to add more value to your product/service to justify the price increase.
• Reduce expenses: By working with your suppliers or partners and negotiating terms you can reduce expenses. Look at cheaper alternatives or completely remove your expenses.
• Tax optimization: By working with a tax accountant you can improve your net profit margin greatly, since taxes can very easily eat into your business.