Profitability & Margins
Operating Margin
The percentage of revenue remaining after subtracting COGS and operating expenses, but before taxes and interest.
Formula
Operating Margin (%) = (Operating Income / Revenue) × 100What is Operating Margin?
Operating margin measures how much profit your business generates from its core operations, as a percentage of revenue. It excludes non-operational items like taxes, interest, and one-time charges.
Operating Margin vs. Other Margins
Operating margin sits between gross margin and net margin in the profitability hierarchy. It gives you a clearer picture of operational efficiency than gross margin, without the noise of taxes and financing that affect net margin.
Example
Revenue: $100,000. COGS: $40,000. Operating expenses: $35,000. Operating income = $25,000. Operating margin = 25%.
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