Gross margin, operating margin, and net margin measure profitability at different levels of your income statement. Each answers a distinct question.
The three margins
Gross margin = (Revenue − COGS) / Revenue Measures how efficiently you produce or deliver your product. High gross margin gives you the runway to invest in sales, marketing, and R&D.
Operating margin = (Revenue − COGS − Operating expenses) / Revenue Measures business model efficiency before interest and taxes. It shows whether your core operations generate profit.
Net margin = Net income / Revenue Bottom-line profit after all costs including interest and taxes. This is what's available for reinvestment or distribution.
Which to track when
| Stage | Primary focus |
|---|---|
| Pre-revenue | Gross margin on pilots |
| Early growth | Gross margin + burn rate |
| Scale | Operating margin trend |
| Mature | Net margin vs. sector |
Investors at Series A/B care most about gross margin trajectory. Public market investors focus on operating and net margin sustainability.
Use the profit margin calculator to compute all three from your financials.