Net Margin
Net income as a percentage of revenue.
Overview
Net margin reflects what remains after all operating expenses, taxes, and interest. It is the bottom‑line view of profitability.
Net margin is net income divided by revenue, including all operating expenses, taxes, and interest.
Definition
Use GAAP‑compliant definitions and compare on trailing twelve months to smooth seasonality and one‑time items.
Net margin is the share of revenue left after all operating expenses, taxes, and interest. It reflects overall profitability beyond unit economics. Mature SaaS businesses typically target positive, growing net margins while maintaining efficient growth.
Formula
Use period net income and revenue.
Compute Net income / Revenue × 100% over the period and reconcile to financial statements.
Net margin = Net income / Revenue × 100%
Example
$20k net income on $100k → 20%.
Show a simple net income and revenue example to illustrate percentage margins.
Common pitfalls
One‑time gains or losses, differing capitalization, and accounting bases can make comparisons unreliable.
- One‑time gains or losses distorting margins
- Different capitalization policies
- Comparing companies with different accounting bases
Benchmarks
Varies by stage; mature SaaS often 10–20%+ net margin.
Varies by stage; mature SaaS often target positive and growing net margins.
Notes
Prefer TTM comparisons and GAAP‑consistent treatment for clarity.
- Use GAAP‑compliant definitions
- Compare over trailing twelve months to smooth seasonality
Related terms
Net margin complements gross margin and informs overall efficiency and profitability.
FAQs
FAQs ask about typical margins and which expenses are included.
SaaS typical?
Net margins vary widely by stage.