What is operating margin?

Operating margin (also called EBIT margin or operating profit margin) measures how much operating income a business earns per dollar of revenue. It is calculated as Operating Income (EBIT) / Revenue × 100. A 15% operating margin means the company keeps $0.15 of operating profit for every $1 of sales.

What is included in operating expenses?

Operating expenses include selling, general and administrative costs (SG&A), research and development (R&D), depreciation, amortization, and other recurring costs needed to run the business. They do not include interest, taxes, or one-time extraordinary items.

What is the difference between operating margin and net margin?

Operating margin measures profitability before interest and taxes. Net margin deducts interest expense, taxes, and non-operating items. Operating margin is useful for comparing core business performance across companies with different capital structures or tax situations.

What is a good operating margin?

It varies widely by industry. Software companies often achieve 20–40%+. Retail businesses typically run 3–8%. Manufacturing is usually 5–15%. Compare your ratio to industry benchmarks rather than a single universal target.

How does operating margin differ from gross margin?

Gross margin only subtracts cost of goods sold (direct production costs) from revenue. Operating margin subtracts both COGS and all operating expenses (SG&A, R&D, depreciation). Operating margin is a more complete picture of day-to-day profitability.

Operating Margin Calculator

Name: Operating Margin Calculator
Availability: InStock
Author: Nham Vu

Enter revenue and operating expenses to instantly calculate operating margin, EBIT, and other key profitability metrics.

Income Statement Inputs

Revenue (Net Sales)

Cost of Goods Sold (COGS)

Operating Expenses (SG&A, R&D, D&A)

Results

Enter values and click Calculate

Summary

Enter revenue and operating expenses to instantly calculate operating margin, EBIT, and other key profitability metrics.

How it works

Enter your total revenue (net sales) for the period.
Enter the cost of goods sold (COGS) — direct costs tied to production.
Enter total operating expenses (SG&A, R&D, depreciation, etc.).
Gross profit is calculated as Revenue minus COGS.
Operating income (EBIT) = Gross Profit minus Operating Expenses.
Operating margin = EBIT / Revenue × 100.

Use cases

Evaluating how efficiently a company converts revenue into operating profit.
Comparing operating margins across quarters or fiscal years.
Benchmarking a business against industry peers.
Identifying whether cost increases are eroding profitability.
Reviewing income statement data before an investment decision.
Setting a target operating margin for annual financial planning.
Analyzing the impact of a price change on operating income.
Presenting profitability metrics in a board or investor report.

Frequently Asked Questions

Last updated: 2026-06-11 · Reviewed by Nham Vu