Net Profit Margin is a financial metric that represents the percentage of profits earned from revenue after all expenses, including taxes and interest, are subtracted.
With Databox you can track all your metrics from various data sources in one place.
Net profit margin is a financial ratio that companies use to measure the profitability and efficiency of their core operations. It represents the percentage of revenue that remains as profit after deducting all expenses, including the cost of goods sold, operating expenses, taxes, and interest.
When assessing a company’s financial health, one of the first things investors and lenders evaluate is the net profit margin. To calculate it, you first need to identify your net profit and total revenue.
Then, you can follow this formula:
Net Profit Margin = (Net Profit / Revenue) x 100
Let’s say a business generated $1,000,000 in revenue for the year and calculated a net profit of $230,000. Following the formula above, we find that the net profit margin for this business is 23%. This means that for every dollar of revenue generated, the company retains 23 cents as profit after covering expenses.
There are a lot of specific circumstances that you need to consider when assessing whether your company’s net profit margin is objectively good. Some of the main factors are your industry, business size and model, and competitive landscape.
That said, we pulled up some data from our product that could be helpful.
According to Xero Benchmarks for All Companies, a good net profit margin is around 10%. But again, make sure to always consider the factors above since the number can vary widely based solely on the industry. In the automobile industry, a 5-10% net profit margin might be considered good, whereas that same percentage is considered drastically low in SaaS where 15-30% is a better benchmark.
If you want to stay on top of future trends and be able to instantly compare your performance to companies just like yours (in any given industry), you can join our Benchmark Groups – it’s free for everyone!
By focusing on strategies to increase their net profit margin, companies can effectively optimize their profitability and strengthen their competitive position.
We shortlisted a few proven approaches to increasing net profit margin that the leading experts we spoke to over the years recommend:
More resources to help you increase net profit margin:
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Databox is a business analytics software that allows you to track and visualize your most important metrics from any data source in one centralized platform.
To track Net Profit Margin using Databox, follow these steps:
Xero’s dashboard template provides you with insights about cash flow, bank accounts, sales and expenses entered in Xero to stay on top of your business.
Net profit margin is one of the most important financial metrics in any business because it provides a clear measure of profitability and financial health.
Investors, analysts, shareholders, and lenders all use it to assess the company’s ability to convert revenue into profit.
The gross profit margin represents the percentage of revenue remaining after deducting the cost of goods sold from the revenue.
On the other hand, the net profit margin considers all expenses, including operating expenses, taxes, and interest, in addition to the cost of goods sold.
The Cash Received by Bank Account metric tracks the total amount of cash received by a specific bank account over a given period of time. It includes all payments, deposits, and other sources of revenue that have been credited to the account.
Cash Spent is a financial metric that tracks the total amount of cash a company has spent over a given period of time. It helps businesses assess their expenses and manage their cash flow effectively.
The Purchase Orders by Contact metric in Xero measures the total number and value of purchase orders associated with each contact (e.g. vendor, supplier) in the system.
Profit (Loss) measures the financial success or failure of a business by calculating the difference between revenue and expenses. It shows the amount of money a business has earned or lost during a specific period, usually a year.
The Debtors metric in Xero measures the total amount of money owed to a company by its customers, indicating the level of outstanding debts and the company's ability to collect payment.
Gross Profit Margin is a financial metric that measures how much profit a company makes after deducting the cost of goods sold from its revenue.
The Quotes Sent metric tracks the number of quotes or estimates sent to potential customers, providing insights into sales activity and potential revenue.
The Quotes Declined metric measures the number or percentage of quotes that were rejected or turned down by potential customers.