Operating Margin

The share of revenue left after operating costs (production plus running the business) but before interest and taxes. Shows how profitable the core operation is.

Operating margin = operating income / revenue

Why it matters

Operating margin isolates how well the actual business runs, apart from financing and tax choices. Watching it improve as you scale is evidence of operating leverage, that growth is getting more efficient.

For example

A company earns 20 lakh of operating profit on 1 crore of revenue, a 20 percent operating margin, before interest and taxes.

Related terms

Net Margin Gross Margin EBITDA

Go deeper

See how founders actually handle this on Money, pricing and metrics, part of the Starting Up hub.

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