Net Profit Margin: More Than Just a Percentage
By Meliza Angelica S. Estinopo

When business owners glance at their financial statements, one figure often gets a quick look before being set aside: Net Profit Margin. It’s easy to view it as “just a percentage” — a number that tells you whether you made money or not.

But after working with multiple businesses, I’ve seen firsthand how this one figure holds the power to spark game-changing insights.

💡 What is Net Profit Margin, Really?

Your Net Profit Margin is the percentage of your revenue that remains as net income after all operating expenses, taxes, interest, and other costs have been deducted.

Formula:

Net Profit Margin (%) = (Net Profit ÷ Revenue) × 100

For example, if your business earned ₱1,000,000 in sales and ended up with ₱150,000 in profit after expenses, your net profit margin is 15%.

🚩 Why It’s More Than Just a Number

Here’s how I explain it to my clients:
It’s not just about how much you earn — it’s about how efficiently you turn sales into real profits.

Over the years, I’ve seen businesses with high sales but low net profits. They were surprised to learn that their growing revenue wasn’t translating into meaningful growth. Why? Because of unchecked expenses, poor pricing decisions, or inefficient systems.

On the other hand, I’ve worked with companies that had modest sales but high margins — these businesses were lean, focused, and sustainable.

🧩 It Helps You Ask the Right Questions

When reviewing financial statements with my clients, here are some of the questions we ask using net profit margin as a lens:

• Are we pricing our products/services correctly?
  
  

• Are operating costs (like rent, salaries, overhead) eating into our profits?
  
  

• Are we getting a strong return on marketing or advertising spend?
  
  

• How do we compare to others in our industry?
  
  

These are not compliance questions — these are strategic questions, and the answers can shape your decisions moving forward.

📊 Net Profit Margin Tells You If You’re Running a Business or Just Making Sales

Sales are important, but what you keep matters more than what you make. If your business is growing but your profit margin is shrinking, it’s a red flag — and you shouldn't wait until the year-end to address it.

Regular monthly reviews of your net profit margin allow you to pivot early, cut unnecessary expenses, or re-evaluate suppliers, staffing, and even product lines.

✅ Here’s What You Can Do Now

1. Look Beyond Sales. Ask your accountant to show you your net profit margin monthly, not just annually.
   
   

2. Compare Across Time. Is your margin improving or declining over the past 3–6 months?
   
   

3. Tie It to Business Goals. If your margin goal is 20%, plan your operations and pricing structure around that.
   
   

4. Use It to Plan Ahead. Forecast your profit margins based on expected changes in costs, not just projected revenue.
   
   

💬 Final Thoughts from My Desk

Many business owners I’ve worked with initially thought that tracking margins was only for big companies. But when they started reviewing this regularly, they realized how powerful it is to steer the business with intention — not just with instincts.

And that’s what we want for every Filipino business — a company that’s not just earning, but thriving, and keeping more of what it makes.

If you’re curious about how your numbers stack up or want to build a better review system for your financial health, my team and I at Estinopo Accounting Firm are here to guide you.