What does Operating Margin mean?

Operating margin does a good job of showing how profitable (or potentially profitable) your core business is.

How it's calculated

This metric subtracts all of your operating expenses (direct costs, payroll, rent, advertising, and so on) from your revenue to determine your operating income* and then divides the result by your revenue to produce a percentage.

What's better?

Higher

What it means

Operating margin does a good job of showing how profitable (or potentially profitable) your core business is. This margin shows how much of your revenue is available after you pay all the required costs of your regular operations — but before you make accounting adjustments for taxes and the like.

*You may see or hear others refer to operating income as “EBITDA.” That is an acronym for “earnings before interest, taxes, depreciation, and amortization,” which is pretty wonky but can be helpful in remembering which expenses are not included.

 

(Source: LivePlan.com)