Learn how to calculate profit ratio and measure your business's profitability relative to revenue.
The profit ratio (also called net profit margin) measures how much profit you make per dollar of revenue. Formula: Profit Ratio = Net Income ÷ Revenue × 100. A ratio of 15% means you keep $0.15 profit for every $1.00 in sales. Higher ratios indicate better profitability and efficiency. Industry averages vary—service businesses may have 15-30% profit ratios, while retail and restaurants typically have 3-7%. Lenders use profit ratios to assess business health and loan repayment ability.
Profit Ratio = (Net Income ÷ Revenue) × 100
This is the same as net profit margin. Learn more about profit margin formula and profitability ratios.
Use our net income calculator to calculate your profit ratio.
Business: Service company
• Annual Revenue: $200,000
• Net Income: $30,000
Profit Ratio = ($30,000 ÷ $200,000) × 100 = 15%
✓ Good profit ratio - Keeps $0.15 profit for every $1.00 in sales
Very profitable. Strong pricing power or excellent cost control. High efficiency.
Healthy profitability. Good balance of revenue and expenses. Solid business performance.
Moderate profitability. May need to improve margins or reduce expenses. Room for improvement.
Low profitability. May struggle to cover expenses or grow. Need immediate improvements to pricing or costs.
Grow sales through marketing, new products, or expanding to new markets. Higher revenue improves the ratio if expenses don't increase proportionally.
Cut unnecessary costs, negotiate better vendor terms, or improve operational efficiency. Lower expenses improve net income and profit ratio.
If you have pricing power, increase prices to improve margins. Test price increases carefully to avoid losing customers.
Emphasize products or services with better profit margins. Reduce or eliminate low-margin offerings.
It depends on your industry. Generally, 10-20% is considered good for most small businesses. Service businesses often have higher ratios (15-30%), while retail and restaurants have lower ratios (3-7%). Compare to industry benchmarks.
Lenders check profit ratios to assess your ability to generate profit and repay loans. Higher ratios improve approval chances and get better rates. Low or negative ratios are red flags. Learn about how to qualify for business loans.
They're the same thing. Profit ratio and net profit margin both measure net income as a percentage of revenue. Learn about profit margin formula.
Detailed guide to calculating profit margins.
Comprehensive guide to all profitability ratios.
Calculate your net income and profit ratio.
Find financing to support growth and improve profitability.
Our team can help you understand your financial ratios and find financing to support growth and improve profitability.
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