Net Profit Margin
1. What is it?
The net profit margin is basically what really stays in the company’s pocket after paying all the bills. Unlike the gross margin, it takes into account all costs, both direct (like raw materials or services provided) and indirect (such as rent, salaries, internet, taxes, marketing, and even that office coffee).
In short, it answers the question:
“If I subtract all costs and expenses, how much of my revenue truly becomes profit?”
2. Why is it important?
- Helps you find out if your business is actually making a profit.
- Shows the real profitability, without illusions created by high revenue.
- Helps you understand if pricing and costs are balanced enough to keep the business healthy.
3. How to calculate?
The formula is simple:
Net Profit Margin (%) = (Net Profit ÷ Total Revenue) × 100
4. Quick Example
Imagine you made R$10,000 in service revenue in a month. Your costs were:
- Direct costs (COGS): R$3,000
- Salaries and rent: R$2,000
- Marketing: R$500
- Taxes: R$1,000
Your net profit would be:
10,000 – 3,000 – 2,000 – 500 – 1,000 = R$3,500
Applying the formula:
Net Profit Margin = (3,500 ÷ 10,000) × 100 = 35%
Which means:
- For every R$1 earned, R$0.35 is profit.
- The other R$0.65 goes to expenses.
5. Final Tip
The net profit margin can be calculated per product, per set of sales, or for the entire business within specific periods (weekly, monthly, etc.).
There’s no single rule — the sky’s the limit!
And don’t forget to also check the gross profit margin, which helps complete the analysis.