How to Improve Your Business’s Net Profit Margin

Having a strong net profit margin in your business does not mean you’re going to make more money as it represents how much cash you have on hand to keep — not how much your company’s revenue has increased by. It is also a measure of financial stability when economic fluctuations happen and a measure of your ability to cover operating and day-to-day expenses. 

In addition, your net profit margin shows what you may have available to invest in growth as immediate opportunities arise, to pay yourself, to pay your investors and your staff, and it can help you when applying for a business loan or re-amortizing a loan.   

To improve your business’s net profit margin, you need to increase revenue, decrease expenses, or both since the formula for net profit is: 

• (Revenue – Expenses) / Revenue 

Because this is a margin, it does not show the total amount of money your business retains, so you can have a higher net profit margin but not have as much money.  

The time period you’re calculating for is important to factor in, as cutting expenses can immediately improve net profit margin, while entering new markets can play out over months or years. Another way net profit margin is impacted positively is by increasing production capacity via short-term expenses. Buying new equipment that results in long-term growth from greater production capacity and lower costs is a perfect example. 

Before we jump in, there are two profit margins that get intertwined and confused with business net margins, but all of these serve different purposes. 

• Gross profit margin: This is similar to net profit margin in that it is revenue minus expenses, but gross profit margin subtracts the cost of goods sold from revenue and then expenses, so there are two levels to look at and use when making business decisions about selling prices. 

• Operating profit margin: Sometimes called your operating income margin, this is similar to net profit margin in showing your operating income compared to sales, but it is a percentage that tells you how to modify your operating expenses vs. the cash you have on hand. 

Below, you’ll find different ways you can grow revenue and decrease expenses to improve your business’s net profit margin without sacrificing total profit. This keeps you in a better position to attract or keep investors happy and to use the margin when applying for financing. 

Growing revenue to improve net profit margin 

To grow revenue for an improved net profit margin, you can raise prices or increase volume: 

• Revenue = Price * Quantity  

Depending on your business, the changes in price will impact how much customers buy, so be careful that a price increase doesn’t hurt total revenue by causing lower sales volume. The opposite is also true where a price decrease could increase volume to the point that overall revenue grows.  

Before finalizing pricing decisions, run surveys, chat with customers, or try the price change in a test market to see how the changes in price impact revenue.   

Beyond price changes, there are other ways you can grow revenue including the following. 

• Enter new geographies: Opening locations in new cities can increase volume from new customers, and you can keep expenses in check by sharing services like finance and HR across your locations.  

• Find new product uses: Thinking about different ways people can use your product, or different places where they can use it in the same way, can boost your sales volume. If you sell heavy equipment tires, wouldn’t it be great for sales volume if you got gym-goers to use them for cross-functional training? 

• Bundle products: One of the greatest examples of bundling is The Economist magazine subscription bundle. Revenues were plummeting as people purchased $59 digital subscriptions over $125 for print. So they experimented with a bundle at the same price as print. 

• Digital only: $59 

• Print only: $125 

• Print + Digital: $125 

Adding digital to the print subscription created value in their customer’s mind and cost The Economist little. Further, it made more customers choose the bundle and boosted revenue 43%. In addition to recovering their print-only subscribers, the publication may be selling more digital ad space with more eyeballs on digital content. You could apply the same psychology to other small businesses, like a pet service offering grooming + photography sessions, a home cleaning service bundling cleaning + plant watering, or a personal training service bundling in-person + take-home workout plans. 

• Discount smartly: Instead of discounting with coupons that anyone can use online, try couponing to increase revenue. If free shipping costs you the same, offer it at a slightly higher average order value (AOV) level, or if customers normally have 3 items in their cart, offer a 10% discount on the fourth. You can also try a free gift with a coupon once customers add the extra item or make a purchase within a shorter time frame than normal. If they normally make a purchase every 60 days, the free gift with the code can apply if they make the purchase in 30 or 45. 

Pro-tip: These can also increase expenses, even if it’s something small like more server fees to hold extra data, so make sure the revenue increase for your specific business is greater than the expenses to improve net profit margin. 

Decreasing expenses for improved net profit margin 

Decreasing expenses improves net profit margin, so if you can eliminate ones like unused warehousing space, extra offices you rent, or going for non-name brand office supplies, you’ll be in good shape. Just make sure the cuts do not impact the quality of the product or service you deliver as that can impact revenue, too. 

Keeping customer satisfaction top of mind, here are ways you can decrease expenses to improve your business’s net profit margin: 

• Skip the middleman to decrease cost of goods sold (COGS): If you purchase supplies from a distributor because it’s easy, but marketplace websites give you direct access to international manufacturers, you can find cheaper prices for components like LED light controllers, key blanks, and reams of paper and ink by skipping the middleman. Order minimums might be higher, but getting a better price on small components that constitute a large portion of your COGS can improve your net profit margin, despite needing a little extra storage space.  

• Buy property instead of renting: 100% of rent is an expense but that’s not true of all the costs when you buy real estate, since you likely cannot expense the mortgage payments on principal. Owning real estate lets you manage expenses like depreciation across years to make sizable leaps in your net profit margin.  

• Use same-year tax deductions on vehicles: If you need to purchase vehicles or the real estate you purchased has an HVAC system that needs to be repaired, a Section 179 deduction could help you write off a large expense the year you buy it. This will lower margins for one year, but net profit margin in all future years will improve since you don’t have the expense anymore. 

• Refinance or recast to lower interest expenses or monthly payments: Using a small business loan to consolidate outstanding debt can improve net profit margin by lowering interest expense with a better rate or having a longer payback period with the new loan. Using idle cash to recast existing debt can improve net margins by having a lower interest expense, since you’re paying off a chunk of the outstanding principal and then amortizing the rest. Depending on how much you owe and what the new principal is, your monthly payment may decrease, helping to improve your business net profit margin for the long run even though you have less cash on hand in the short run. 

• Replace old machines with new equipment: If you are spending a fortune on maintenance and repair, but new machinery or upgraded equipment is available or on sale in a marketplace, the initial purchase will reduce your business net profit margin temporarily, but the reduced costs throughout the next few years will improve it for the long run. If you have to take an equipment financing loan to cover the costs, evaluate what the payments will be compared to what you spend on repairs and maintenance. It may be less, making the loan a smarter option. This is especially true if you can now produce/service more and increase revenue from the upgraded machinery. 

Now that you know how to influence your business’s net profit margin, let’s look at what a good one is for your industry. 

What a good net profit margin is 

Highly competitive markets may have a good net profit margin of 5% to 10%, while low-competition markets will have higher figures. The best way to tell if you have a good net profit margin is to compare your business with competitors.  

Business net profit margins change based on the industry you’re in, the size of your business, and the markets you operate in. They can also change based on operating expenses. According to NYU, here are some net profit margins by industry you can use as a starting point.* 

Improving your net profit margin means growing revenue, cutting expenses, or both. The right combination of revenue growth and expense reduction tactics will be different for every business, so focus on what works for you and your long-term business strategy. 

*Data is from 2025.