How to work out net profit margin
Net profit margin is what is left of each £1 of sales after every cost. Work it out and read it beside the gross margin.
In this room: 3 tasks, 10 questions
- From gross profit to net profit5 questions
- Reading the two margins together3 questions
- What moves the net margin2 questions
Net profit is what is left after every cost: gross profit less the expenses of running the business.
Net profit margin is net profit as a percentage of sales: net profit ÷ sales × 100.
| Item | £ |
|---|---|
| Sales | 400,000.00 |
| Cost of sales | (240,000.00) |
| Gross profit | 160,000.00 |
| Wages | (72,000.00) |
| Rent | (28,000.00) |
| Other expenses | (20,000.00) |
| Net profit | ? |
Answer the questions below
4 more questions follow in this task.
| Item | Last year | This year |
|---|---|---|
| Sales | 300,000.00 | 400,000.00 |
| Gross profit | 135,000.00 | 160,000.00 |
| Expenses | (99,000.00) | (120,000.00) |
| Net profit | 36,000.00 | 40,000.00 |
The gross margin was 45% last year and 40% this year.
Read the two margins as a pair. If the gross margin falls, look at selling prices and the cost of the goods. If the gross margin holds and the net margin falls, look at the expenses.
Answer the questions below
2 more questions follow in this task.
The net margin rises when the business keeps more of each £1 of sales.
- Raise prices without losing sales
- Pay less for the goods
- Spend less on running costs
Being paid sooner, or paying suppliers at a different time, moves cash. It does not change profit.
A margin can also set a target. Sales × the margin wanted gives the profit needed.
Answer the questions below
1 more question follows in this task.