What is net profit margin?

Net profit margin (definition)

Net profit margin is the percentage of total income you get to keep after all expenses and taxes are paid.

A big chunk of your income will be used to cover business expenses and square up with the tax office. The portion of income that’s left at the end is your net profit margin. Net profit can be reinvested in the business, or distributed to the owners.

Formula for net profit margin shows that net profit divided by revenue, times 100, equals net profit margin.

Net profit margin is the portion of income you get to keep

Whereas net profit is a dollar amount, net profit margin is a percentage. A low net profit margin means your business can’t absorb too many more costs before it starts losing money. You may struggle to find the budget to improve or grow the business.

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This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.