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Business Net Profit Margin

February 21, 2017
Read Time: 0 min

What it is, how it’s calculated and why it’s important to small business owners.


Net Profit Margin = (Net Profit ÷ Total Revenue) x 100

Net Profit = Total Revenue – Total Expenses


Net Profit Margin is the percentage of Total Revenue that translates into a profit for a company. It can be calculated by dividing a company’s Net Profit by their Total Revenue and then multiplying that number by 100 to convert it into a percentage.

Try our free cash flow solution, CashSage.

How it is Used

The Net Profit Margin shows how effective a company is at turning revenue into profit and is one of the most important indicators of their financial health. It is a key benchmarking metric for businesses since net profit margins can be easily compared to competing business regardless of their size.

Ways to Improve Net Profit Margin:

A business can improve their Net Profit Margin by either increasing their Total Revenue or by decreasing their Total Expenses. Companies can increase their overall revenue through slightly raising the price of or diversifying their current products or services. Companies can decrease their overall expenses by improving energy efficiency or by finding cheaper sources for raw materials needed to manufacture goods.

To benchmark Net Profit Margin against others in your industry and learn how changes can generate more cash for your business, try our free cash flow solution, CashSage.

About the Author


Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest

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