Use our net profit margin calculator to work out both net profit and percentage (%) profit margin.

Knowing how much profit your business makes is essential. The company may have great sales, but the business cannot survive if the cost of sales and expenditure eats up all the sales.

A high net profit margin means typically that your sales are calculated at around the right price. If the figure is low, it is worth spending some time reviewing both sales prices and overheads to see where improvements can be made.

This figure is generally calculated over a period of time, which can be a month, quarter or year.

Net Profit Margin Formula

The first thing to do is to look at the formula.

The figures are taken from the Profit and Loss account. The best way to produce a profit and loss is by using good accounting software like QuickBooks or FreshBooks.

Net Profit Example

An example is a business that has 10,000 sales in a year, the cost of sales (purchases of products for sale and other direct costs) is 1,500, there are also other general overheads (utilities, rent, wages and taxes) of 3,000. The Net profit is 10,000 minus 1,500 minus 3,000 giving a figure of 5,500.

Calculate Net Profit Margin

To calculate the net profit margin, divide your sales income by your net income.

Net Income / total sales = net profit margin

In the example above it is as follows:

5500 / 10000 = 0.55

To find the percentage multiply by 100 = 55%

This means that 55% of revenue is profit.