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What is the net margin rate? Definition
The net margin rate is actually the net margin, but expressed directly as a percentage. Net margin is an accounting indicator used to determine a company’s overall profitability as a percentage.
A high net margin means that your company is profitable; on the contrary, if it’s negative, you need to be careful. The net margin can be used to determine the selling price of the products and services the company sells. Not to be confused with the mark-up.
Find commercial calculators and calculating tools on this page.
What is a good net margin?
Variations in net margin as a function of products, inventory and overall market health. It’s a good idea to compare this measure with your competitors and your sector to see how you’re doing. A good net margin will be above 20% whatever the market.
Net margin formulas
You can calculate your net margin with net profit or net income and sales revenue. This calculation is based on all income and expenses.
Net margin = ( Net profit / Sales revenue ) x 100
Net margin = ( Net income / Sales revenue ) x 100
Net income equals net profit.
Example of net margin rate
Your company sells cell phones
Your profit is 20,000.
Your sales revenue is 400,000.
( 20 000 / 400 000 ) * 100 = 5% net margin
Your net margin is 5%;
