Do this to keep more hard-earned cash in your pocket when growing your online business

Why did you start your business?

Did you want to escape the rat race and 9-5?
Maybe you wanted the freedom to work when and where you want?
Or maybe you wanted to make a difference and impact the lives of your customers?

Regardless of your ‘why’, there’s one thing that’s true for 97% of online business owners…

You’re in business to make money.

How much? Well, that depends on your goals. 

Maybe you’re happy with a 6-figure solopreneur lifestyle. Perhaps you have ambitions to grow to 7-figures and beyond. 

But one thing remains true for all…

You want to maximize the amount of money you hold onto.

My guess is that you didn’t go into business to end up keeping only a small % of the revenue you’ve generated. I know I didn’t. Generating revenue is hard work, so it’s only right you keep as much of it as possible. 

That’s why the Leverage Point I’m going to share with you today is so important.

The majority of online business owners that I meet don’t know this number until it’s too late. 

Even though they’re working with a CPA, everything is calculated after the fact. They only find out when they can no longer do anything to improve it. 

That means they’re missing opportunities to save more cash and use this to invest in growth or pay themselves more.

Figured out what I’m referring to?

Let’s jump into today’s essay all about Net Profit Margin. 


What is Net Profit Margin?

Net Profit Margin measures how much profit is generated as a percentage of your revenue. 

I’ll share why this is important shortly, but first, let’s look at how to calculate it.

Net Margin = Net Profit / Sales Revenue

So how do you figure out your Net Profit?

Net Profit (or Net Income as you might know it) is the profit left over after all your costs, taxes, and expenses have been subtracted from your revenue. This also includes things like depreciation and amortization (your accountant should help you to understand these). 

To keep it simple, let’s assume that:

  • Revenue = $500K
  • Total costs, expenses, and taxes = $150K 
  • Net profit = $500K – $150K = $350K
  • Net Margin = $350K / $500K = 0.7 * 100 = 70%

Ultimately what your Net Profit Margin tells you is how healthy & efficient your business is.

So let’s look at a few ways to improve it…


How to improve your Net Profit Margin?

You might have figured out that there are a couple of factors that impact whether your Net Margin is good, or bad. 

I’m going to share some target benchmarks with you a little later on. 

The main factors that impact your Net Margin are:

  • Pricing – the higher your price, the greater your revenue
  • Costs – any costs you incur through selling e.g. advertising costs
  • Expenses – any costs you incur from running your business e.g. staff, rent, software subscriptions, etc 

By leveraging those 3 things, you can increase your Net Margin and make sure that you have more cash in your bank to reinvest into growth. 

Let’s unpack each of these in more detail with some examples…


Discover the specific leverage points that will unlock growth in your business in less than 3 minutes. Start the diagnostic.



Your goal is not just to make sales, but to increase the value of every sale you make.

Pricing is how you do that.

I’ve written previously about how to increase your Average Order Value and Customer Lifetime Value. Both of these Leverage Points indicate how much an average customer spends with you over their lifetime. 

Let’s look at how pricing impacts your Net Profit Margin:

Example 1

  • Revenue = 100 customers x $5 product = $500K
  • Total costs, expenses, and taxes = $150K 
  • Net profit = $500K – $150K = $350K
  • Net Margin = $350K / $500K = 0.7 * 100 = 70%

Example 2 

  • Revenue = 100 customers x $10 product = $1000K
  • Total costs, expenses, and taxes = $150K
  • Net profit = $1000K – $150K = $850K
  • Net Margin = $850K / $1000K = 0.85 * 100 = 85%

Assuming the cost to sell your product remained the same at each price point, the jump in profit is quite substantial. See how creating Deep Funnels for your business can amplify this further.



The way we define costs when looking at your net profit is Cost of Goods Sold (COGS). These are costs that you incur by selling your product.

For an e-commerce business, this would include the costs of inventory.

But for online businesses selling digital products and info-products, costs tend to be relatively low since the costs to sell online are minimal. 

Instead, what you’ll likely focus on instead are your Operating Expenses.


Operating Expenses

This is the total amount of money it costs to run your operation. It includes:

  • Salaries
  • Subscriptions
  • Marketing costs
  • Sales costs
  • And any other expenses you incur running your business

When it comes to increasing your Net Margin, your goal should be to keep your Operating Expenses as low as possible. You can do this by focusing on building a slick and streamlined operation.

Something else to keep in mind is that if or when your sales drop, fixed expenses won’t drop with them. This means you’re still paying the same amount each month even though you’re bringing in less revenue. 

Try to keep any fixed commitments as low as possible. The last thing you want is to get caught short if you see a sudden decline in sales (believe me, it can happen!). 


Why increase your Net Margin?

Think about it like this…

When revenue comes into your business, there are 4 ‘pots’ it can go into:

  1. Taxes
  2. Operating Expenses
  3. Profit

Taxes are related to the revenue you generate.

Operating expenses are what it costs you to run your business.

And profit is what is left to pay yourself.

So if you want to earn more money, your focus should be on increasing profit.

How do you do that? By keeping your operating expenses as low as possible… 


What Net Margin benchmarks should you be aiming for?

The beauty of running an online business is that costs are low.

You should be aiming for no more than 20% of your revenue to be spent on operating expenses. 

The caveat to this is unless you’re investing in growth…

If you’re actively spending cash on testing out net marketing campaigns, or hiring team members, your operating expenses might take a hit in the short term whilst your revenue catches up. 


Are you measuring your Net Margin?

Most online business owners don’t know their Net Margin until it’s too late. 

If you’re working with a once-a-year CPA then you’re likely only finding out how much is left after the fact.

If you want to grow your business, and extract more cash personally, you need to be measuring your Net Margin monthly.

If you’d like to chat about how we can help you with that as well as additional real-time reporting on how your business is performing, book an assessment call here.

Until next time,

Dan Steinhart, CPA

P.S. Take this simple 3-minute diagnostic to identify the specific leverage points that will unlock growth in your business. Start here.