Operating Margin Calculator
Calculate operating margin from operating income directly, or from revenue minus COGS minus operating expenses.
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Operating Income
$75,000
Operating Margin
15.0%
How Operating Margin Is Calculated
Operating margin measures what share of revenue is left as profit after covering both the direct cost of goods sold and the operating expenses needed to run the business — things like salaries, rent, marketing, and administration. Enter your operating income directly if you already have it, or build it up from revenue, COGS, and operating expenses.
Operating Margin (%) = (Operating Income ÷ Revenue) × 100
Operating margin differs from gross margin in one key way: gross margin only subtracts the cost of goods sold (COGS) from revenue, while operating margin goes a step further and also subtracts operating expenses like SG&A (selling, general & administrative costs). Operating margin is always equal to or lower than gross margin for the same business.
Example
A business with $500,000 in revenue, $300,000 in COGS, and $125,000 in operating expenses has operating income of 500,000 − 300,000 − 125,000 = $75,000, for an operating margin of 75,000 ÷ 500,000 × 100 = 15%.
Common Use Cases
- Assessing how efficiently a business converts revenue into operating profit.
- Comparing operational efficiency across companies or business units, independent of financing and tax structure.
- Tracking whether rising overhead is eating into profitability even as revenue grows.
FAQs
How is operating margin different from gross margin?
Gross margin only accounts for COGS — the direct cost of producing what's sold. Operating margin also subtracts operating expenses like salaries, rent, marketing, and admin costs, giving a fuller picture of how much of each revenue dollar survives after running the actual business, not just making the product.
How is operating margin different from net margin?
Operating margin stops before interest and taxes. Net margin goes further still, subtracting interest expense and taxes to arrive at the final bottom-line profit margin.
What's considered a good operating margin?
It varies by industry — software and services businesses often post operating margins of 20% or higher, while capital-intensive industries like retail or manufacturing frequently run margins in the single-digit to low-teens range. Compare against similar businesses in your industry.