Definition
Free cash flow margin shows free cash flow as a share of revenue, reflecting how much revenue turns into cash after CapEx.
Formula
Free cash flow margin = free cash flow / revenue
Example
Free cash flow $500k on $5M revenue yields a 10% margin.
How to use it
- Track margin over time to see operating leverage and discipline.
- Use normalized CapEx for comparability across years.
Common mistakes
- Treating one-time working capital releases as recurring margin.
- Comparing margins without adjusting for seasonality.
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Free Cash Flow Margin" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Sanity-check with a related calculator from the same category on MetricKit.
- Read the related guide (e.g., Runway and burn: gross vs net burn, working capital, and cash levers) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- DCF Sensitivity Calculator: Estimate how enterprise value changes with discount rate and terminal growth assumptions (simple 3x3 sensitivity).
- Loan Payment Calculator: Compute monthly payment, total interest, and total paid for a loan using amortization.
- APR to APY Calculator: Convert APR to APY (and APY to APR) given compounding frequency.
- Real Return (Inflation-adjusted) Calculator: Convert nominal return into real return given an inflation rate (and compare the difference).
- Deferred Revenue Rollforward Calculator: Bridge billings to recognized revenue by rolling deferred revenue forward for a period.
Guides
- Runway and burn: gross vs net burn, working capital, and cash levers: A practical guide to runway: compute net burn, understand why cash differs from profit, and how working capital and collections change runway.
- Investment decision metrics: NPV vs IRR vs payback vs PI: A practical guide to investment decision metrics: when to use NPV, when IRR misleads, and how payback and profitability index fit in.