How to calculate net profit margin
Your net profit margin shows what percentage of your sales is actual profit. This is after factoring in your cost of goods sold, operating costs and taxes. To calculate your net profit margin, divide your sales revenue by your net income.
Net income ÷ total sales = net profit margin
The result is your net profit margin. You can multiply this number by 100 to get a percentage.
Let’s say your business makes $12,000 in sales, it cost you $8,000 to make your products, and you spent another $2,000 on operating costs (such as overhead and taxes).
Total sales - (cost of goods sold + operating costs) = net income
$12,000 - ($8,000 + $2,000) = $2,000
Net income ÷ sales = net profit margin
$2,000 ÷ $12,000 = 0.1667
0.1667 × 100 = 16.67%
In this example, your business would have a net profit margin of 16%. In other words, 16% of your total sales revenue is profit.
Related terms:
How can I calculate my net worth?
What is net income?
How to calculate gross profit
Related Xero feature:
Know how your business is performing with the business dashboard
Related Small Business Guide:
Track small business cash flow without spreadsheets
Accounting Terms
Accounting terms and how-tos for beginners. Let us walk you through all the basics that you need know.How to calculate net profit margin
Your net profit margin shows what percentage of your sales is actual profit. This is after factoring in your cost of goods sold, operating costs and taxes. To calculate your net profit margin, divide your sales revenue by your net income.
Net income ÷ total sales = net profit margin
The result is your net profit margin. You can multiply this number by 100 to get a percentage.
Let’s say your business makes $12,000 in sales, it cost you $8,000 to make your products, and you spent another $2,000 on operating costs (such as overhead and taxes).
Total sales - (cost of goods sold + operating costs) = net income
$12,000 - ($8,000 + $2,000) = $2,000
Net income ÷ sales = net profit margin
$2,000 ÷ $12,000 = 0.1667
0.1667 × 100 = 16.67%
In this example, your business would have a net profit margin of 16%. In other words, 16% of your total sales revenue is profit.
Related terms:
How can I calculate my net worth?
What is net income?
How to calculate gross profit
Related Xero feature:
Know how your business is performing with the business dashboard
Related Small Business Guide:
Track small business cash flow without spreadsheets
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