What is operating margin and how is it calculated?

Operating margin measures the percentage of revenue left after paying operating expenses. It's calculated as: Operating Margin = (Operating Income ÷ Revenue) × 100%, where Operating Income = Revenue - COGS - Operating Expenses.

What is a good operating margin?

A good operating margin varies by industry. Software companies often achieve 20-40%, while retail typically sees 2-5%. Generally, 15% is considered good, 20% is excellent, and consistently improving margins indicate strong management.

What's the difference between operating margin and gross margin?

Gross margin only subtracts COGS from revenue, while operating margin also deducts operating expenses like rent, salaries, and marketing. Operating margin provides a more complete picture of operational efficiency.

Operating Margin Calculator

Calculate your operating profit margin to measure operational efficiency and core business profitability. This comprehensive calculator helps you analyze EBIT margins, compare against industry benchmarks, and track performance over time.

Calculation Method:

Revenue ($) Total sales or service revenue

Cost of Goods Sold (COGS) ($) Direct costs of producing goods/services

Total Operating Expenses ($) SG&A, R&D, and other operating costs

Industry Benchmark:

Operating Margin: -

Operating Income: -

Gross Profit: -

Industry Comparison: -

Understanding Operating Margin

📊 Operating Margin Formula

Basic Formula:

Operating Margin = (Operating Income ÷ Revenue) × 100%

Where:

Operating Income = Revenue - COGS - Operating Expenses

Measures efficiency of core operations

📈 EBIT Margin

EBIT Formula:

EBIT = Revenue - COGS - Operating Expenses

Alternative:

EBIT = Net Income + Interest + Taxes

Earnings Before Interest and Taxes

Operating Margin vs Other Profit Margins

Gross Margin

Revenue - COGS

Measures production efficiency

Operating Margin

Revenue - COGS - Operating Expenses

Measures operational efficiency

Net Margin

Revenue - All Expenses (including interest & taxes)

Measures overall profitability

Operating Margin by Industry

🏆 Excellent (20%+)

Software: 20-40%
Pharmaceuticals: 25-35%
Financial Services: 25-40%
Real Estate: 20-50%

✅ Good (10-20%)

Technology Hardware: 10-20%
Telecommunications: 10-25%
Healthcare Services: 10-20%
Utilities: 15-25%

📊 Moderate (5-10%)

Manufacturing: 5-15%
Consumer Goods: 5-12%
Hospitality: 5-15%
Transportation: 5-10%

📉 Low (0-5%)

Retail: 2-5%
Grocery Stores: 1-3%
Airlines: 0-5%
Restaurants: 3-6%

Operating Margin Examples

💻 Software Company

SaaS business with high margins:

Revenue $10,000,000

COGS $2,000,000

Operating Expenses $5,000,000

Operating Income $3,000,000

Operating Margin 30%

🏭 Manufacturing Business

Traditional manufacturer with moderate margins:

Revenue $50,000,000

COGS $35,000,000

Operating Expenses $10,000,000

Operating Income $5,000,000

Operating Margin 10%

🛒 Retail Business

Retail chain with typical low margins:

Revenue $100,000,000

COGS $75,000,000

Operating Expenses $21,000,000

Operating Income $4,000,000

Operating Margin 4%

How to Improve Operating Margin

📈 Revenue Enhancement

Increase pricing strategically
Improve product mix
Expand high-margin services
Focus on premium customers
Implement value-based pricing

💰 Cost Reduction

Negotiate better supplier terms
Optimize inventory management
Reduce waste and inefficiencies
Automate repetitive processes
Consolidate vendors

⚙️ Operational Efficiency

Streamline workflows
Invest in technology
Improve employee productivity
Optimize facility usage
Implement lean principles

📊 Expense Management

Review SG&A spending
Control marketing costs
Optimize headcount
Reduce overhead allocation
Eliminate redundancies

How to Use This Calculator

Select Method

Choose simple or detailed calculation approach

Enter Revenue

Input total sales or service revenue

Add COGS

Enter direct costs of goods/services sold

Include OpEx

Add all operating expenses

Select Industry

Choose for benchmark comparison

Calculate

Get margin analysis and insights

💡 Operating Margin Best Practices

📊

Track operating margin trends monthly to identify issues early

🏭

Compare your margins to industry peers, not just averages

💡

Focus on sustainable margin improvements, not short-term cuts

📈

Balance margin goals with growth investments

🎯

Set realistic margin targets based on your business model

Operating Margin Calculator

Operating Expense Breakdown

Margin Analysis

Understanding Operating Margin

📊 Operating Margin Formula

📈 EBIT Margin

Operating Margin vs Other Profit Margins

Gross Margin

Operating Margin

Net Margin

Operating Margin by Industry

🏆 Excellent (20%+)

✅ Good (10-20%)

📊 Moderate (5-10%)

📉 Low (0-5%)

Operating Margin Examples

💻 Software Company

🏭 Manufacturing Business

🛒 Retail Business

How to Improve Operating Margin

📈 Revenue Enhancement

💰 Cost Reduction

⚙️ Operational Efficiency

📊 Expense Management

How to Use This Calculator

Select Method

Enter Revenue

Add COGS

Include OpEx

Select Industry

Calculate

💡 Operating Margin Best Practices

Operating Margin Calculator

Operating Expense Breakdown

Margin Analysis

Understanding Operating Margin

📊 Operating Margin Formula

📈 EBIT Margin

Operating Margin vs Other Profit Margins

Gross Margin

Operating Margin

Net Margin

Operating Margin by Industry

🏆 Excellent (20%+)

✅ Good (10-20%)

📊 Moderate (5-10%)

📉 Low (0-5%)

Operating Margin Examples

💻 Software Company

🏭 Manufacturing Business

🛒 Retail Business

How to Improve Operating Margin

📈 Revenue Enhancement

💰 Cost Reduction

⚙️ Operational Efficiency

📊 Expense Management

How to Use This Calculator

Select Method

Enter Revenue

Add COGS

Include OpEx

Select Industry

Calculate

💡 Operating Margin Best Practices

Related Financial Calculators

Gross Margin Calculator

Net Profit Margin Calculator

EBITDA Calculator

Break-even Calculator