Business Glossary
What Is Net Margin?
Net margin is the percentage of revenue remaining as profit after all costs including direct costs, overheads, interest, and tax. It is the truest measure of what a business earns for every pound of revenue.
The Formula
Net Margin % = (Net Profit ÷ Revenue) × 100
Worked Example — UK SME
A UK manufacturer: revenue £640,000, COGS £390,400, overheads £153,600. Net profit = £96,000. Net margin = (96,000 ÷ 640,000) × 100 = 15%. Above the 5–13% benchmark for UK manufacturing.
UK Benchmark
📊 UK benchmarks: Distribution 3–9%, Retail 4–12%, Manufacturing 5–13%, Service 8–18%, Hospitality 3–9%. Below 3% in any sector leaves almost no buffer against cost increases.
Common Questions
What is the difference between gross and net margin?
Gross margin measures profitability after direct costs only. Net margin measures profitability after all costs including overheads. Strong gross margin with weak net margin means overhead costs are too high.
How do I improve net margin?
Two routes: improve gross margin through pricing or cost reduction; reduce overheads through a line-by-line review. A 1% improvement on £640k adds £6,400 annually with no new customers required.
What is a good net margin for a UK SME?
Entirely sector-dependent. Always compare against your sector benchmark, not a universal figure.
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