Net Margin.
In plain English
Net margin (also called net profit margin) is what is left of each dollar of revenue after you subtract every cost the business has: direct product costs, overhead like rent and software, marketing, interest on loans, and taxes. It is shown as a percentage of total revenue. This is the bottom-line number, the truest measure of whether the whole operation makes money. A business can have a healthy gross margin and still post a negative net margin if overhead is too high.
01Why it matters
Net margin is the number that decides whether you can pay yourself, reinvest, or survive a slow month. Two shops with identical sales can have very different take-home depending on this single percentage.
02The math, step by step
Your candle shop brings in $50,000 in a year. Direct candle costs are $20,000, rent and utilities are $12,000, marketing is $5,000, and taxes are $4,000. Total costs are $41,000. Net profit is $50,000 minus $41,000, which is $9,000. Net margin is $9,000 divided by $50,000, which equals 0.18, or 18 percent. You keep 18 cents of every sales dollar.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
Net margin is NOT the same as gross margin. Gross margin only removes the direct cost of the product. Net margin removes everything, including rent, marketing, interest, and taxes, so it is the real profit and is always smaller than gross margin.
Plain-English answers from our glossary. Receipts included. Never advice.
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