Operating Margin
Definition
Operating profit (revenue minus cost of goods sold and operating expenses) expressed as a percentage of revenue. Operating margin measures how efficiently a company converts revenue into profit from its core business activities before interest and taxes. Operating margin is a key indicator of how effectively an organisation's intangible assets — including brand strength, proprietary technology, and operational know-how — translate into profit from core business activities.
Complementary Terms
Concepts that frequently appear alongside Operating Margin in practice.
Revenue minus the cost of goods sold (COGS), expressed as a percentage of revenue. Gross margin indicates how efficiently a company produces its goods or delivers its services and determines how much revenue is available to cover operating expenses and generate profit.
EBITDA expressed as a percentage of revenue, indicating how much operating profit a company generates from each pound of revenue before non-cash charges and financing costs. EBITDA margin is a key benchmark for operational efficiency across industries.
Revenue minus variable costs, expressed as a total or per-unit figure. Contribution margin reveals how much each unit sold contributes to covering fixed costs and generating profit, and is a key input in unit economics analysis.
The ratio of total purchased inputs (services, energy, and materials) to revenue, expressed as a percentage. Purchases intensity measures how dependent a business is on external inputs and how efficiently it converts purchased resources into value.
The degree to which a company's operating income changes relative to a change in revenue, determined by the proportion of fixed costs to variable costs. Companies with high intangible asset bases often exhibit strong operating leverage because intangible costs (such as software development and R&D) are largely fixed, enabling profits to scale rapidly with revenue.
The ongoing costs of running a business, including salaries, rent, utilities, marketing, and professional services. Unlike capital expenditure, OpEx is expensed immediately on the income statement.
The measure of the value of goods and services produced, calculated as revenue minus the cost of purchased inputs (services, energy, and materials). GVA captures the value a company creates through its own activities and is a core productivity metric in the Opagio framework.
Earnings Before Interest, Taxes, Depreciation, and Amortisation. A widely used measure of a company's core operating performance that strips out financing decisions, tax jurisdictions, and non-cash charges, making it useful for comparing profitability across companies.
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