Formula
Net Profit Margin = (Net Income ÷ Revenue) × 100
Calculation Example
If a company has $1,000,000 in revenue and $150,000 in net income, the net profit margin is: (150,000 ÷ 1,000,000) × 100 = 15%
Data Source
Income statements, financial reports, accounting records
Tracking Frequency
Monthly, Quarterly, Annually
Optimal Value
Higher is better; typical ranges: 10-20% for tech companies, 5-10% for retail.
Minimum Acceptable Value
A positive margin is necessary for sustainability; negative values indicate financial trouble.
Benchmark
Tech ~15-25%, retail ~5-10%, manufacturing ~8-15%
Recommended Chart Type
Line chart (to track over time), Bar chart (to compare across business units)
How It Appears in Reports
Displayed as a percentage in financial statements and profitability analysis.
Why Is This KPI Important?
Shows how much profit a business actually makes after all costs, guiding investment decisions.
Typical Problems and Limitations
Can be manipulated by accounting methods, does not reflect cash flow.
Actions for Poor Results
Cut unnecessary expenses, optimize pricing, increase sales efficiency.
Related KPIs
Revenue, Gross Profit Margin, Operating Profit Margin
Real-Life Examples
A software company reduced overhead costs by 15%, increasing net profit margin by 5%.
Most Common Mistakes
Confusing gross and net profit, ignoring one-time expenses when calculating.
