Small Business Terms: What Is Net Profit Margin (NPM)

By Craig Anthony

0 min read

Net profit margin is the ratio of net profits to sales or revenue for a business or business segment. The metric is measured as a percentage and shows how much of each dollar in revenues translates directly into profits. Generally, the higher the net profit margin the better, but depending on the industry, a low profit margin can still equate to a large magnitude of profits in dollar terms.

The formula for net profit margin is:

Net profit margin = net profit / total revenue

For example, assume a business sells three products that generated $100,000, $50,000, and $80,000 in sales. Overall, the net profit of the company was $50,000. Net profit margin is:

$50,000 / ($100,000 + $50,000 + $80,000) = 21.7%

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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