Gross Margin (GM) vs Net Profit Margin (NPM)
Gross margin measures profitability after direct production costs; net margin measures profitability after all expenses including SG&A, R&D, interest, and taxes. Gross margin reflects pricing power and operational efficiency; net margin reflects the overall financial health of the business.
At a Glance
Gross Margin (GM)
Revenue minus cost of goods sold, expressed as a percentage of revenue
Net Profit Margin (NPM)
Net income as a percentage of revenue
Key Differences
- Gross margin excludes operating expenses (SG&A, R&D); net margin includes them all.
- Gross margin is always higher than net margin for any profitable business.
- A high gross margin with a low net margin signals high operating costs — worth investigating.
- SaaS typically shows 60–80% gross margins but far lower (or negative) net margins at growth stage.
When to Use Each
Use Gross Margin (GM) when…
Use gross margin to evaluate pricing strategy, compare product line economics, and benchmark against industry peers before accounting for fixed overhead.
Full Gross Margin guide →Use Net Profit Margin (NPM) when…
Use net margin to assess overall business profitability and the efficiency of your full cost structure from revenue to bottom line.
Full Net Profit Margin guide →Formulas
GROSS MARGIN (GM)
Gross Margin % = ((Revenue - Cost of Goods Sold) / Revenue) × 100
Revenue - Cost of Goods SoldNET PROFIT MARGIN (NPM)
Net Profit Margin % = (Net Income / Revenue) × 100
Revenue - All Expenses (COGS, Operating, Interest, Taxes)Charts
Gross Margin (GM)
Net Profit Margin (NPM)