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Net Profit Margin

Also called: net margin, net income margin

Definition: Net profit margin is net income as a percentage of sales: net income ÷ sales × 100. It shows how much of each sales dollar remains after every expense, interest and tax included.

Updated November 7, 2026 · How we check facts

Net profit margin is the bottom-line version of profit margin. Harvard Business School Online gives it as Net Income ÷ Sales, where net income is what is left after cost of goods sold and all other expenses, including non-operating ones. It can be negative when a business makes a loss.

Formula

net profit margin (%) = net income ÷ sales × 100

Example

A shop has $12,500 of sales, $4,500 cost of goods sold, $3,600 operating expenses, $400 interest and $1,000 income tax. Net income = 12,500 − 4,500 − 3,600 − 400 − 1,000 = $3,000, so net profit margin = 3,000 ÷ 12,500 × 100 = 24%. Its gross margin is 64%.

Common mistakes

Comparing a net margin with a gross margin is the most frequent error: they stop at different lines of the income statement. See how to calculate profit margin for the full walk-through, or try the profit calculator.

Calculate it

Free toolProfit CalculatorProfit, margin and break-even in one place.

Guides that explain it

Related terms

Net IncomeNet income, also called net profit or net earnings, is what a business has left after deducting all expenses from revenue, including cost of goods sold, operating costs, interest and income tax.Gross MarginGross margin is gross profit as a percentage of sales: (sales − cost of goods sold) ÷ sales × 100. It shows how much of each sales dollar remains after direct costs.Gross ProfitGross profit is net sales minus the cost of goods sold: the money left from selling a product after its direct costs, before operating expenses, interest and tax.401(k)A 401(k) is an employer-sponsored retirement savings plan in which employees contribute part of their pay, often with employer matching, up to annual limits set by the IRS.Annual Percentage Rate (APR)Annual percentage rate (APR) is the cost of credit expressed as a yearly rate; for many loans it combines the interest rate with certain fees charged when the loan is made.Annual Percentage Yield (APY)Annual percentage yield (APY) is the total interest a deposit account pays over a 365-day period, expressed as a percentage that includes the effect of compounding.Catch-Up ContributionA catch-up contribution is an extra amount that people age 50 or older may add to a 401(k) or similar retirement plan above the normal annual limit, if the plan permits it.Compound InterestCompound interest is interest calculated on both the original principal and the interest already added to it, so the balance grows faster than it would with simple interest.

Sources

  1. Harvard Business School Online — How to Use Profitability & Margin Ratios