Calculate operating margin
Enter revenue and operating expenses to see operating income and operating margin.
- Operating income
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- Operating margin
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Operating income: —, Operating margin: —
What is operating margin?
Operating margin is the share of revenue left over after paying operating expenses — the day-to-day costs of running the business, such as wages, rent and materials, but before interest and tax. It's expressed as a percentage, so businesses of different sizes can be compared on a common scale.
What does operating margin tell you?
Operating margin shows how efficiently a business turns revenue into profit from its core operations, stripped of financing and tax decisions. A rising margin usually means costs are being controlled relative to sales; a falling margin can flag pricing pressure or costs growing faster than revenue.
How to calculate operating margin
Subtract operating expenses from revenue to get operating income, then divide by revenue and multiply by 100. For example, revenue of £500,000 and operating expenses of £400,000 gives operating income of £100,000, and an operating margin of (£100,000 ÷ £500,000) × 100 = 20%.
Operating margin vs net margin vs gross margin
Gross margin only deducts the direct cost of goods sold, leaving operating expenses, interest and tax still to come off. Operating margin goes a step further and deducts operating expenses too, but stops before interest and tax. Net margin deducts everything — operating expenses, interest and tax — for the profit that's actually left over. Each measures profitability at a different stage of the income statement.
People also ask
- It varies a lot by industry, but a healthy operating margin is often considered to be around 10–20%, with anything above that seen as strong. Compare against similar businesses in the same sector rather than a single universal benchmark.
- Not exactly. "Profit margin" is a general term that can mean gross, operating or net margin depending on context. Operating margin specifically covers revenue less operating expenses, before interest and tax.
- Yes. A negative operating margin means operating expenses exceed revenue, so the core business is making an operating loss before interest and tax are even considered.
- Operating expenses are the day-to-day costs of running the business, such as salaries, rent, utilities, marketing and equipment costs. They exclude the cost of goods sold, plus interest and tax, which sit outside the operating margin calculation.
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