Operating Margin

A profitability ratio calculated as operating profit divided by revenue, expressed as a percentage. It shows how much profit a business makes from operations after covering all operating expenses.

Operating margin reveals operational efficiency. A business with a 30% operating margin retains 30p from every £1 of revenue after paying all operating costs. Comparing it over time shows whether the business is becoming more or less efficient.

A founder generates £200,000 in revenue with £140,000 in total operating costs, resulting in an operating profit of £60,000 and an operating margin of 30%. She benchmarks this against industry averages to assess how competitive her business model is.