Net Profit Margin Calculator

Net profit margin from profit and revenue

Use figures for the same period, both excluding VAT.

Fill in the fields above and the answer appears here.

Profit—
Margin—
Cost—
Revenue—

CostProfit

The working out is shown here once the calculator has enough information.

What does net profit margin tell you?

It tells you what share of everything you sold survived to the end. £42,000 of net profit on £600,000 of turnover is 7%, so seven pence in every pound made it through.

Banks read this figure. Investors ask for it. Buyers value a business on it. Turnover, next to it, is decoration. Two companies both turning over £600,000 can be worth wildly different amounts depending on whether the bottom line reads £12,000 or £90,000.

It is also close to useless for day-to-day pricing, because it moves for reasons that have nothing to do with your prices. A rent review shifts it. So does a rate change on a loan, or one bad legal bill. Price with the gross margin calculator and treat this page as the annual scoreboard.

Why is net margin so much lower than gross margin?

Because everything in between is real. A café running 72% gross on coffee can finish the year at 4% net with nothing having gone wrong at all.

Take that café on £300,000 of sales. Gross profit at 72% is £216,000. Rent takes £36,000. Wages take £120,000, which on its own is more than half the gross profit and is normal in hospitality. Utilities and insurance take £22,000, leases and repairs £14,000, marketing and card fees £9,000, accountancy and software £5,000. Operating profit: £10,000. Interest on the fit-out loan removes £2,000, corporation tax takes its share, and the year ends near £6,500. A 2.2% net margin on a business that looked comfortable at the top of the page.

None of that means gross margin lies. The two numbers answer different questions, and reading only one is how a busy shop runs out of money in March. The operating margin calculator covers the middle step, and gross profit vs net profit lays out the whole sequence line by line.

How should you read your own figure?

Against last year, first. Direction beats level. A margin falling from 9% to 6% while turnover climbs is the clearest early sign that growth is being bought rather than earned, and it shows up here long before it shows up in the bank.

Then against your sector. Grocery lives on 1% to 3% and works because of volume. A consultancy at 3% is in trouble. Comparing yourself with a national average across all industries tells you nothing, so the ranges in what is a good profit margin are split by trade.

Last, against your own resilience. A 4% net margin means a 4% fall in prices, or a 4% rise in costs you cannot pass on, wipes out the year. Work out what shock your margin absorbs before deciding whether it is good enough.

Net profit margin questions

What is the net profit margin formula?
Net profit margin % = (Net profit ÷ Total revenue) × 100, where net profit is what remains after every cost including interest and tax.
What is a healthy net profit margin?
For most UK small businesses anything from 5% to 15% is normal and sustainable. Below 3% leaves no room for a bad quarter; above 20% usually signals a service business with little cost of sale.
Is net profit margin calculated before or after tax?
After. Profit before tax gives a useful intermediate figure, but net margin conventionally means the bottom line once corporation tax is deducted.
Can a business have a good gross margin and a bad net margin?
Routinely. A 60% gross margin swallowed by rent, wages and finance costs can end at 2% net. That gap is the most common shape of a struggling business.
Does drawing a salary reduce net profit margin?
If you are paid through payroll, yes, it sits in costs. Dividends are taken from profit after tax and do not. Comparing your margin against another business without knowing which route the owner takes will mislead you.

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