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 profit?
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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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 profit?
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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