How to calculate net profit margin
Net profit margin (calculation)
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 net income by your total sales revenue.
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.