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

by Greg DePersio

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%

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