Definition
Net margin measures how much profit remains after all expenses (including overhead, interest, and taxes) as a share of revenue.
Formula
Net margin = net income / revenue
How to use it
- Net margin is downstream; improve it by improving unit margin, then operating leverage.
- Use net margin with cash flow to avoid confusing accounting profit with runway.
Measured as
Net margin = net income / revenue
Operator takeaway
- Net margin is downstream; improve it by improving unit margin, then operating leverage.
- Use net margin with cash flow to avoid confusing accounting profit with runway.
- Tie Net Margin to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Read Unit economics hub: CAC, LTV, payback, and runway (a practical stack) if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
- Decide whether Net Margin belongs in cash planning, valuation, or debt monitoring so the number is used in the right model.
Where to use this on MetricKit
Guides
- Unit economics hub: CAC, LTV, payback, and runway (a practical stack): A practical hub for unit economics: CAC, fully-loaded CAC, LTV, payback, margin impacts, burn multiple, and runway planning.
- 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.