What is a good net profit margin?
Benchmarks vary widely: software 15–30%, legal and professional services 15–25%, retail 2–8%, restaurants 3–9%, manufacturing 5–15%. A 10%+ net margin is generally considered healthy for most small businesses. Below 5% leaves little buffer.
What is the difference between gross and net profit margin?
Gross margin only deducts cost of goods sold (COGS) — it shows production efficiency. Net margin deducts everything: COGS, operating expenses, interest, and taxes. Net margin shows true bottom-line profitability after all costs are paid.
How do I improve my net profit margin?
Focus on the three levers: (1) increase revenue without proportionally increasing costs, (2) reduce COGS through supplier or process improvements, (3) optimize operating expenses by auditing subscriptions, staffing efficiency, and overhead. Even 2–3% improvement compunds to significant cash.
What is operating margin (EBIT)?
EBIT (Earnings Before Interest and Taxes) — or operating margin — shows profit from core operations before financing costs and taxes. It's useful for comparing operational efficiency across companies with different capital structures or tax situations.