Operating Margin Calculator
Calculate your operating margin to assess operational efficiency and profitability before interest and taxes.
Total sales or revenue for the period
COGS, SG&A, R&D, depreciation (exclude interest & taxes)
Direct costs to produce goods/services (optional, for breakdown)
What is operating margin?
Operating margin measures the percentage of revenue remaining after paying all operating expenses, but before interest and taxes. Formula: Operating Margin = (Operating Income / Revenue) * 100, where Operating Income = Revenue - Operating Expenses (COGS + SG&A + R&D + Depreciation). It shows how efficiently a company converts sales into operating profit. Higher percentages indicate better operational efficiency.
What is a good operating margin?
Good operating margin varies by industry: Software/SaaS: 20-40%, Retail: 2-5%, Manufacturing: 10-15%, Healthcare: 15-25%, Banking: 25-35%, Restaurants: 5-10%. Above 15% is generally strong. Below 5% may indicate pricing pressure or high costs. Compare to competitors in your industry. Consistent margins or improving trends are positive signs even if absolute percentage is lower.
What is the difference between operating margin and net margin?
Operating margin = (Operating Income / Revenue) * 100 - excludes interest and taxes. Net margin = (Net Income / Revenue) * 100 - includes all expenses including interest and taxes. Operating margin shows core business efficiency. Net margin shows final profitability after financing costs. Example: Revenue $1M, Operating Income $200K (20% operating margin), Net Income $140K after $60K interest+taxes (14% net margin).
What expenses are included in operating margin?
INCLUDED: Cost of goods sold (COGS), Selling, general & administrative (SG&A), Research & development (R&D), Depreciation and amortization, Rent and utilities, Salaries and wages, Marketing expenses. EXCLUDED: Interest expense, Taxes, One-time charges/gains, Investment income/losses. Operating margin focuses only on expenses from core business operations.
How can I improve operating margin?
Increase operating margin by: 1) Increase revenue: Raise prices, upsell/cross-sell, expand markets. 2) Reduce COGS: Negotiate supplier discounts, improve production efficiency, reduce waste. 3) Reduce operating expenses: Automate processes, cut unnecessary spending, improve productivity, renegotiate contracts. 4) Economies of scale: Fixed costs spread over more revenue. Track margin monthly and focus on highest-impact improvements.
Can operating margin be negative?
Yes, negative operating margin means operating expenses exceed revenue - the company loses money on core operations before paying interest and taxes. This is common for: Startups investing in growth, Companies in turnaround, Seasonal businesses in off-season, Heavy R&D companies. Short-term negative margins may be acceptable if there's a path to profitability, but sustained negative operating margins indicate serious business model issues.