What Is Operating Margin?
The percentage of revenue remaining after all operating expenses.
The percentage of revenue remaining after all operating expenses.
Operating margin measures the percentage of revenue left after deducting all operating expenses — including COGS, R&D, sales & marketing, and general & administrative costs. It excludes interest and taxes.
For early-stage SaaS companies, negative operating margins are common as they invest heavily in growth. As companies mature, they're expected to reach operating margins of 15-25%.
Operating margin is a key component of the Rule of 40 and is closely watched by investors as an indicator of path to profitability and business model efficiency.
Formula
Operating Margin = (Operating Income ÷ Revenue) × 100
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