About the Operating Margin Calculator
Operating margin shows how much of every dollar of revenue is left after paying for the goods you sell and the costs of running the business — salaries, rent, marketing, software and depreciation — but before interest and income tax. It is the cleanest measure of how profitable the core business is, independent of how it is financed.
Enter revenue, cost of goods sold, operating expenses and depreciation & amortization. The calculator returns operating income (often called EBIT), operating margin, gross margin, EBITDA and EBITDA margin, and a breakdown of where each sales dollar goes.
Owners use it to track efficiency month to month, investors to compare companies in the same industry, and lenders to judge whether operating profit comfortably covers interest. Use figures for the same period (a month, quarter or year) from your income statement.
With the default inputs, the operating margin is 15%. Change any value above to recalculate instantly.
How to use the operating margin calculator
- 1Enter net revenue for the period from your income statement.
- 2Enter cost of goods sold and total operating expenses for the same period.
- 3Enter depreciation and amortization, or 0 if it is already inside operating expenses.
- 4Read the operating margin and compare it with prior periods or industry peers.
Formula and method
Gross profit is revenue minus the direct cost of goods sold. Subtracting operating expenses (selling, general and administrative costs, research and development) and depreciation and amortization gives operating income, which analysts often treat as EBIT (earnings before interest and taxes).
Operating margin divides operating income by revenue. EBITDA adds depreciation and amortization back to operating income, so EBITDA margin shows cash-style operating profitability before non-cash charges. Interest, income taxes and one-off non-operating items are deliberately excluded.
- COGS
- Cost of goods sold — direct materials, labor and production costs
- Operating expenses
- SG&A and R&D costs of running the business
- D&A
- Depreciation and amortization of long-term assets
- EBIT
- Earnings before interest and taxes (≈ operating income)
Worked examples
Manufacturer with $1M revenue
Revenue of $1,000,000 minus $550,000 COGS leaves $450,000 gross profit (45%). Subtracting $250,000 operating expenses and $50,000 D&A gives $150,000 operating income — a 15% operating margin. Adding back D&A gives EBITDA of $200,000 (20%).
Service agency
Gross profit is $250,000 − $100,000 = $150,000. After $110,000 of overhead and $15,000 D&A, operating income is $25,000, a 10% operating margin; EBITDA is $40,000, or 16% of revenue.
Operating loss
A 25% gross margin leaves $100,000, which does not cover $130,000 of operating costs and D&A. Operating income is −$30,000, a −7.5% operating margin.
Frequently asked questions
What is a good operating margin?+
It depends heavily on the industry. Grocery and distribution businesses often run in low single digits, while software and some professional services can exceed 20%. Compare against peers and your own trend rather than a universal number.
Is operating margin the same as EBIT margin?+
Usually, yes. Operating income and EBIT are often used interchangeably, although EBIT can include non-operating income such as investment gains, which operating income excludes.
How is operating margin different from net profit margin?+
Operating margin stops before interest expense, income taxes and non-operating items. Net profit margin subtracts all of those, so it is lower for most companies and is affected by financing and tax choices.
Does operating margin include depreciation?+
Yes. Depreciation and amortization are operating costs and are subtracted to reach operating income. EBITDA margin is the version that adds them back.
How can I improve operating margin?+
Raise prices or improve product mix to lift gross margin, reduce COGS through purchasing or productivity, or grow revenue faster than fixed overhead so each sales dollar carries less operating expense.