Operating Margin

Operating margin expresses operating profit (EBIT) as a percentage of revenue.

Operating margin sits between gross margin and net margin on the P&L — it captures the cost of actually running the business (salaries, rent, sales and marketing, R&D) after cost of goods, but before interest and tax. A shrinking operating margin with a stable gross margin usually points to rising operating expenses (often headcount or marketing spend growing faster than revenue), not a product-cost problem.