Net Profit Margin

How much of your revenue actually becomes profit? Do you know if your business is feasible in the long run?

The net profit margin lets you know how much profit you obtain from every dollar of revenue. If you’re having issues with cost-containment, it’ll show here.

At GEPC, we can help you understand the role that this margin has in your business. It’s time to take charge of your finances.

What is it?

Net Profit Margin indicates the proportion of profit to revenue. Net profit (also known as net income) takes all business expenses into account except for taxes. Net Sales refers to the amount of money a business receives for the sales of its goods and/or services. 

Net Profit Margin is typically expressed as a percentage. A percentage of 35%, for example, indicates that for every dollar of revenue collected, $0.35 becomes profit. A ‘healthy’ profit margin varies significantly depending on the industry.

How will it impact your business?

The net profit margin is a strong indicator of overall financial health, as it describes how much profit is collected from revenues. The primary function of most businesses is to make a profit, so this metric is important for stakeholders.  

If the margin is too low the business will not be profitable, particularly since this metric looks at profits prior to taxes. In contrast, high margins indicate that a business is good at controlling costs, has minimal expenses, and/or is able to command high prices in comparison to costs. It might also mean that their pricing strategy is aggressive, in which case it would be worthwhile to evaluate the amount of profit per good/service relative to the amount of people willing to buy at that price point.

ready to Take action?

If the Net Profit Margin is lower than desired it’s a good practice to reduce overhead and production costs. Minimizing the number of discounts provided to consumers also helps. Alternatively, the cost to consumers can be raised, but this is risky since it can have the result of alienating consumers if they don’t want to purchase at the new price.

want more information?

Schedule a free consultation at gregevans.ca or (705) 880-2224 to learn more about what we have to offer. It all starts with a conversation.