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:
The Xero Profit & Loss (P&L) Overview dashboard provides a detailed view of income, expenses, gross profit, and net profit trends. It includes net profit breakdowns by type and visual comparisons of revenue vs. expenses over time.
This report gives a snapshot of financial results using Xero data on income, expenses, cash flow, balance sheet, and overall financials, supporting informed financial decisions.
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.
Gross Profit (Budget) is a financial metric that tracks the amount of revenue a company generates after deducting the cost of goods sold. It helps businesses assess their profitability by comparing the budgeted gross profit to actual results.
This metric displays the planned/estimated total expenses for a specific period, sorted by type of expense such as salaries, utilities, marketing, etc. It helps businesses track and control their spending by comparing actual expenses with the budgeted ones.
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.
The Closing Cash Balance by Bank Account metric in Xero shows the total balance remaining in each of your linked bank accounts as of the end of the selected accounting period.
Quotes Declined Value is a metric showing the total value of customer quotes that were rejected or declined, indicating potential issues in sales strategies and areas for improvement.
Current liabilities are the debts a business owes and must pay within 12 months.
Accounts Payable Turnover is a metric that measures how quickly a company pays its suppliers. It's calculated by dividing the cost of sales by the average accounts payable.
Cost of Sales by Subtype is a financial metric that categorizes costs incurred in the production or sale of goods or services by subtype. This metric helps businesses identify areas where costs can be reduced or optimized, and can be used to create budgets and forecasts.