Find out how much of each dollar of revenue is left after paying for the goods you sell and the cost of running the business. Enter revenue, cost of goods sold and operating expenses, or operating income directly, to get the operating margin with gross, EBITDA, pre-tax and net margins side by side.
Last updated:
I have
Income statement
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$
Salaries, rent, marketing, office costs.
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$
Used for EBITDA; part of operating expenses.
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$
Negative for an operating loss.
$
Adds gross margin to the comparison.
Below operating income (optional)
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$
Negative for a non-operating loss.
%
Prior period (optional)
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Enter your values to see the result.
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How to use the Operating Margin Calculator
Choose your input: the full cost breakdown, or revenue and operating income.
Enter revenue and costs: COGS, SG&A, research and development, depreciation and amortization, and other operating expenses.
Optionally add interest, non-operating income and a tax rate to compare with pre-tax and net margin.
Add a prior period to see whether the margin improved and by how many percentage points.
Read the results and download the common-size income statement as CSV.
Operating margin formula
Gross profit = revenue − cost of goods sold
Operating income = gross profit − operating expenses (SG&A, R&D, depreciation and amortization, other)
Operating margin = operating income ÷ revenue × 100
EBITDA margin = (operating income + depreciation and amortization) ÷ revenue × 100
Net margin = net income ÷ revenue × 100
Example: revenue of $850,000 with $480,000 COGS gives gross profit of $370,000 (43.53%). Operating expenses of $255,000 (SG&A $190,000, R&D $25,000, D&A $30,000, other $10,000) leave operating income of $115,000, an operating margin of 13.53%. Adding back D&A gives an EBITDA margin of 17.06%.
Where each margin sits on the income statement
Margin
Subtracts from revenue
Best used to judge
Gross margin
Cost of goods sold
Pricing and production or purchasing cost
EBITDA margin
COGS and cash operating expenses
Operating cash generation, comparing firms with different asset ages
Operating margin
COGS and all operating expenses incl. D&A
Efficiency of the core business
Pre-tax margin
Also interest and non-operating items
Effect of financing choices
Net margin
Everything, including income tax
Bottom-line profitability for owners
Ways to improve operating margin
Raise gross margin through pricing, product mix or lower input costs.
Grow revenue faster than fixed costs: rent, salaries and software spread over more sales lift the margin (operating leverage).
Review the operating expense ratio line by line in the common-size statement to see which costs take the biggest share of revenue.
Watch one-off items: restructuring costs or asset sales can distort a single period, so compare several periods.
Frequently asked questions
What is the operating margin formula?
Operating margin = operating income ÷ revenue × 100. Operating income is revenue minus cost of goods sold and operating expenses such as SG&A, R&D and depreciation. A company with $850,000 revenue and $115,000 operating income has an operating margin of 13.53%.
What is the difference between gross, operating and net margin?
Gross margin subtracts only the cost of goods sold. Operating margin also subtracts the cost of running the business (salaries, rent, marketing, R&D, depreciation). Net margin goes further and subtracts interest, taxes and non-operating items. Each one is a step further down the income statement.
Is operating margin the same as EBIT margin?
Often, but not always. Operating income counts only core operations, while EBIT can include non-operating income such as investment gains. For most small and mid-size businesses without big non-operating items the two are the same.
What is a good operating margin?
It depends heavily on the industry. Grocery and distribution businesses often run on low single-digit operating margins, while software and other asset-light businesses can sustain much higher ones. Compare against peers in the same industry and your own trend over time rather than a single rule.
Why can operating margin be negative?
A negative operating margin means COGS and operating expenses are larger than revenue, so the core business loses money before interest and taxes. It is common for start-ups and in downturns, but persistent negative margins must be funded by cash reserves, debt or new capital.
What does operating leverage tell me?
Degree of operating leverage (DOL) = % change in operating income ÷ % change in revenue. A DOL of 3 means a 10% rise in sales increased operating income by about 30%. High fixed costs make operating income swing more than revenue in both directions.
Are all the tools on FreeToolCabin tested for quality and accuracy?
Yes! Every tool on our site undergoes automated Q/A testing in real browser environments to ensure high precision, correct output, and zero errors. If you happen to spot a bug or have a suggestion, please contact us at [email protected] and our team will review it right away.