Definition
Net margin is net profit as a percentage of revenue — that is, what's left once both variable and fixed costs, tax and interest are subtracted.
Also called: Net margin, Net Margin, Profit margin, Bottom-line marginFollow the sale through to contribution.
Same revenue. A different contribution margin changes what you can afford to spend.
01Sales value does not tell you how much is left.
From contribution margin to bottom line
Net margin is the end of the staircase: after cost of goods (gross margin), after shipping, fees and returns (contribution margin), and after fixed costs like salaries, rent, software and marketing. It's the number that decides whether there's genuinely money left once everything is paid.
That's exactly why a business can have a great ROAS and a healthy margin and still have a thin net margin, if the fixed costs are heavy, or the marketing budget has grown faster than the contribution margin. Net margin reveals that in a way no channel metric can.
Why marketing has to be steered toward the bottom line
All our profit-based steering — POAS, MER, contribution margin — exists to tie advertising to exactly this number. When the bidding optimizes toward contribution margin instead of revenue, and scaling is steered by MER, it's the bottom line the machine works for, not a dashboard.
A healthy growth strategy raises revenue without eroding net margin. Buying revenue that looks great on the top line but thins out the bottom line is the classic trap, and the one profit-based steering is built to avoid.
Frequently asked questions
What's the difference between net margin and contribution margin?
Contribution margin is what's left after variable costs but before fixed ones. Net margin is what's left after everything — salaries, rent, software and tax included. Contribution margin steers bidding; net margin measures whether the whole business makes money.
Can you have a good ROAS and a bad net margin?
Yes, easily. A great ROAS says nothing about fixed costs. If they're heavy, or the marketing budget has grown faster than the contribution margin, the bottom line can be thin despite strong channel numbers. That's why we steer toward profit, not toward ROAS.
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About the author
Nicklas Segatz Mortensen
Growth hacker and fractional CMO with 10+ years' experience and hundreds of millions in managed ad spend behind him. Background from larger Danish and international scale-ups, and from the agency world.
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