Net profit margin: why it falls as revenue grows

Net profit margin is the share of every unit of sales that stays with the company after all costs, including interest and tax. You calculate it by dividing net profit by revenue. If 5 of every 100 lei sold remain at the end, the net profit margin is 5%.

TL;DR. We followed the same 509,807 Romanian companies that reported turnover in both 2022 and 2025. Their sales rose 13.8% and their profit fell 19.3%. Out of every 100 lei sold, they kept 8.39 lei as profit in 2022 and 5.95 lei in 2025.

Founders already talk about the pressure on costs and on profit, and Romania’s company filings give that pressure a measurable shape. We use them here as a close, complete case of revenue that rises while the margin shrinks.

Flaviu Matei, general manager of Faunus Plant, told ZF in 2026, in Romanian, that “2025 was a very important year for us, but also a year that came with real pressure. We are talking about a period in which consumers became more cautious, costs rose and competition intensified, including from very well capitalised international players.”

The CEO of Homplex said in Revista Cariere in 2025, also in Romanian, that “high inflation, one of the highest in the European Union, puts pressure on production costs and on final prices.”

We speak with business owners almost every day, and many ask why less profit is left when they sell more. The first impulse is to cut the price or to buy more advertising. Our guide to pricing power shows what a lower price really costs.

Here we look at what happens inside the accounts before you make either move.

What is net profit margin and how do you calculate it?

Net profit margin is net profit divided by revenue, shown as a percentage. The profit margin formula is net profit ÷ revenue × 100. It takes every cost out of sales, including operating expenses, interest and tax, so it shows what finally belongs to the owners from each unit you sold.

An invented example shows how much remains at each step.

A company sells goods worth 100 lei, about 20 euros at 1 euro to 5 lei. The direct cost of those goods is 70 lei, so the gross margin is 30%. Salaries, rent and marketing take another 20 lei, which leaves 10 lei, an operating margin of 10%.

Interest and tax take 4 more, so the net profit margin is 6%.

The three levels are read together. Gross margin tells you whether the product sells at a healthy price. Operating margin shows whether anything is left after running the company, and net margin shows what stays with the owners.

Many owners watch only the net margin, because dividends come out of net profit. Yet the fall often begins higher up, when some costs grow and nobody notices in time. The next sections show how the three levels differ and how to read each one.

People also ask what percentage of revenue turns into profit, and the answer is the net margin. If you sell goods or services worth 10 million lei and net income is 600,000 lei, profit is 6% of revenue. Revenue shows how much you sold, and margin shows how much you kept.

Why does net profit margin fall when revenue grows?

Our figures show that sales across the whole Romanian economy rose over three years while the margin fell every year. The National Bank of Romania sees the same direction and notes large rises in operating and wage costs. The accounts show the drop, not its cause, which differs by company. Sales grew, and profit did not follow the trend.

Every figure we calculate in this article starts from the financial statements filed with Romania’s Ministry of Finance, UNRIVALS calculation. For 2025, 1,004,791 statements were filed, and 723,827 companies reported turnover. All amounts are in lei as filed, without subtracting inflation.

To compare fairly, we followed the same companies. The 509,807 companies that reported turnover in both 2022 and 2025 sold 2,356.6 billion lei in 2022 and 2,681.8 billion in 2025, which is 13.8% more.

Their net income, meaning profit minus losses, fell in the same period from 197.8 to 159.6 billion lei, down 19.3%. Out of every 100 lei sold, they kept 8.39 lei as profit in 2022 and 5.95 lei in 2025.

The same drop shows across the whole economy, with all companies that reported in each year. Their number differs from year to year, so we write it in the figure.

The red bar marks the latest year. Out of every 100 lei sold across the whole economy, companies kept 8.31 lei as profit in 2022, 7.08 lei in 2023, 6.28 lei in 2024 and 5.94 lei in 2025.

The trend continued in the last year. On the same 644,357 companies present in both 2024 and 2025, sales rose 7.4% while net income fell 2.6%.

Meanwhile the share of companies that closed the year at a loss climbed from 22.2% in 2022 to 27.2% in 2025. More than one company in four now ends the year at a loss.

Romania’s National Bank, in its Financial Stability Report of June 2026, describes the same movement from another angle. The net profit margin of non-financial companies, meaning all companies except banks, insurers and other financial institutions, fell by about 0.6 percentage points, to 4.6% in June 2025.

Operating expenses grew 10.7% and payroll costs grew 15.4% compared with the previous year.

Trade, which has the largest share of the economy’s turnover, has a net margin of 3.2%.

About 35% of companies also carry debts that are more than twice their equity. With rising expenses and heavy debt, a good sales year can bring lower profit.

The strain reaches payments too. Coface, in its 2025 insolvency study, measured that in the first eight months of the year refused payment instruments, for example cheques and promissory notes not paid when due, rose 10% in number and 21% in value, compared with the same period of 2024.

Value grew faster than count, so the refused amounts are larger on average.

PwC’s 29th Global CEO Survey, published in 2026, found that only 30% of CEOs are confident about revenue growth over the next 12 months. The figure was 38% in 2025 and 56% in 2022.

We cover the wider economy in our analysis of the recession in Romania. Here we focus on what you can control inside your own company when sales rise and margin falls. The next section shows how that happens.

What separates companies that grow with profit from those that grow at a loss?

The gap shows in costs and debts while sales grow. Companies that earned more raised sales faster, hired less often than their sales pace and increased debt at almost the same rate as the others. The largest companies are the most exposed.

We analysed companies with turnover above €3 million, setting the size by their 2024 turnover. Of those, 17,904 reported turnover in both 2024 and 2025, and 10,567 sold more in 2025, almost six in ten.

Among the 10,567 that sold more, 49.6% had a lower margin, meaning they kept less profit out of every 100 lei sold than in 2024. And 37.1% had a lower profit as a total amount, even though they sold more.

In the whole-economy analysis we could follow the same 644,357 companies across two consecutive years, up to 2025. The companies above €3 million are the fewest, yet they produce most of the revenue.

The red card shows that almost half of the large companies that sold more had a lower margin, meaning they kept less profit out of every 100 lei sold than a year earlier. The pattern repeats, at 48.5% of these companies in 2022, 48.5% in 2023, 50.3% in 2024 and 49.6% in 2025.

Profit as a total amount fell, in turn, at 32.1% of them in 2022, 35.2% in 2023, 37.3% in 2024 and 37.1% in 2025.

Smaller companies show the same direction, in a milder form. Between €1 million and €3 million, 47.0% have a lower margin and 35.3% a lower profit. Below €1 million the figures are 39.2% and 29.4%.

Taken together, the 17,904 large companies grew revenue from 2,164.9 to 2,294.2 billion lei (up 6.0%). Their net income fell from 111.0 to 105.3 billion lei (down 5.1%). On 129 billion lei of extra sales, they earned 5.7 billion less.

What separates companies that earned more from those that earned less? We took companies with turnover above 15 million lei in 2024 (about €3 million) that sold more in 2025, and compared the medians of the two groups.

For simplicity we call them large companies here, and the exact counts for each group follow.

A total of 6,616 of them earned more. Their sales grew 16.5%, their debts grew 11.7%, and 17.0% hired faster than they sold. Another 3,903 earned less. Their sales grew 9.2%, their debts grew 12.2%, and 27.8% hired faster than they sold.

The highlighted column shows the companies that earned more. Those that earned less grew sales more slowly, yet their debts rose at almost the same pace as the other group’s. They also hired more often beyond the pace of sales. That is how a company can earn less even while it sells more.

A few well-known companies show how revenue can grow while profit falls. In each case the filing shows what happened but not why. The cause is not visible in the accounts, so we do not guess it and we do not judge the company.

At Hornbach Centrala, revenue rose from 1,615.6 to 1,707.4 million lei (up 5.7%), and net income moved from a profit of 38.2 million to a loss of 17.2 million. Employees rose from 1,179 to 1,416, an increase of 20%.

At Delivery Solutions, revenue rose from 1,190.8 to 1,439.6 million lei (up 20.9%), and net income moved from a profit of 21.4 million to a loss of 35.5 million. Employees rose from 1,326 to 1,431.

At Valrom Industrie, revenue rose from 385.6 to 574.0 million lei (up 48.9%), and profit fell from 172.8 to 45.1 million lei. Employees rose from 378 to 508. The company remains profitable, but it keeps less of each leu sold.

On a larger scale, international research shows how rare profitable growth is. McKinsey’s 2026 study on how growth leaders stay ahead found that six in seven companies failed to reach double-digit revenue growth over the past five years.

The profitability analysis starts from about 3,000 companies with revenue above 1 billion dollars in 2019. Of about 400 of them, analysed in nine subsectors, only 61, about 15%, grew both faster and more profitably than the rest.

They beat similar companies in their subsector by 5 percentage points on growth and 7 on profitability, on average per year, over the five years.

Profitable growth remains the exception. Only 61 companies out of about 400 managed it over five years.

Gary Pisano, a professor at Harvard Business School, explained why in his Harvard Business Review article “How Fast Should Your Company Really Grow?”, March and April 2024.

His analysis of US listed companies, with growth adjusted for inflation, shows that of the companies in the top quartile of the growth ranking in 1985, meaning the fastest 25%, only about 15% were still there 30 years later.

“Growth is a strategic choice with implications for a company’s operating processes, financing, human resource strategy, organizational design, business model, and culture.”

Gary Pisano, Harvard Business Review, March-April 2024

Part of what Pisano lists also shows in the accounts, from payroll to debt. Every extra unit sold changes something else inside the company.

Pisano adds that to grow profitably you must keep demand in the market and the company’s capacity to serve it in balance. Our conclusion is that the margin pays for the imbalance both ways. When sales outrun capacity, the margin pays the cost. When capacity grows ahead of sales, the margin pays that cost too.

Cutting the price looks like the easiest move. Yet the price war shows why it puts even more pressure on the margin you wanted to defend. A lower price can bring volume today, and tomorrow you need still more volume to cover the same costs.

What is a good net profit margin in your industry?

A good net profit margin is one that beats the median of your own industry. The median is the middle value, so half of the companies have a higher margin and half a lower one. A general percentage from the internet says too little.

For companies above €3 million by 2025 turnover, the 2025 median net margin is 4.58%, but industries differ widely, from 2.92% in motor vehicle trade and service to 9.57% in real estate.

We calculated these values from the data of 18,554 companies above €3 million, sized by their 2025 turnover, after excluding a few industries we do not analyse. Of the companies that remain, 36.7% have a net margin below 3%, and 9.7% are loss-making. The table lists the industries with at least 300 companies.

Three things stand out in the table. First, the median margin in wholesale, retail and road transport sits between 3.26% and 3.80%. A company in those fields with a 4% margin beats the median of its industry, while staying below the whole economy’s margin of 5.94%.

Second, the percentage you consider good depends on the cost structure. Building construction and specialised construction have medians of 8.40% and 7.59%, and IT has 6.59%. In motor vehicle trade and service, half of the companies (50.2%) have a margin below 3%. A 4% margin means different things in construction and in trade.

The last column shows why a median does not tell the whole story. Real estate has the highest median margin, 9.57%, yet 25.7% of its companies are loss-making. A high median shows that the upper half of a field earns well, but it does not guarantee that every company does.

The National Bank gives trade a net margin of 3.2% for the whole sector, and our median for retail is 3.26%.

The two figures do not compare directly. The National Bank gives the aggregate margin of the whole sector at June 2025, and we give the median of companies above €3 million, sized by 2025 turnover, for all of 2025. For a trader, the useful benchmark is the industry median.

Another field’s margin is never your target. The gaps between industries explain why. An owner in construction who compares with one in trade reaches wrong conclusions, and so does the reverse. A trader who sees 8% in construction may think something is wrong, when the industry simply has another cost structure.

Is net margin the same as gross profit margin?

No. Gross margin subtracts only the direct cost of what you sold. Operating margin also subtracts running costs, and net margin subtracts everything, including interest and tax. They answer three different questions about the same revenue, so a healthy gross margin can sit next to a thin net one. Each level shows a different weak spot.

The table puts the three levels side by side.

None of the three percentages appears ready-made in the filed annual accounts. You calculate them from two or three lines you already have, using the last column as a guide. The exercise at the end of this article starts from there.

A related confusion costs money too, the one between markup and margin. Markup is calculated on cost and margin is calculated on the selling price, so the same gain gives two different percentages. A 25% markup equals a 20% margin. Confusing markup with margin is paid for directly in profit.

Take a product you buy for 80 lei and sell for 100 lei. You gain 20 lei. The markup is 20 divided by 80, which is 25%. The margin is 20 divided by 100, which is 20%. The gain is the same, and only the base of the calculation differs.

The mistake appears when someone says “I have a 25% markup” and believes the margin is 25%. At a selling price of 100 lei, a 25% margin would mean a 25 lei gain and a cost of 75 lei. With the real cost of 80 lei, the 5 lei difference disappears from the result.

For business decisions the margin matters more. Running costs, salaries and tax relate to what comes into the company, which is the selling price. Markup helps when you set a price, and margin helps when you judge the company.

Where does margin get lost? The L1 to L4 layers and AI Brain

Margin usually leaks in several places at once, and the annual accounts only show the result. Our methodology traces where the loss occurs, from commercial infrastructure and measurement systems to monthly data read through AI Brain and to positioning. There are four layers, and AI Brain is the third. A falling margin is repaired on the layer where it broke.

The figure reads from the bottom up. The first layer, L1, is commercial. It covers which clients you bring in, through which channels and on what contracts. If you attract volume through low-margin contracts, revenue can look good while profit stays small. In our audit of Lactate Brădet, this is where the margin loss started.

The second layer, L2, is measurement. Every company knows how much it sold and how much it collected, yet margin per client, channel or product needs separate measurement. If you look only at total revenue, a low-margin contract and a high-margin one can look equally good.

AI Brain, L3, reads company data monthly and shows changes before they reach the annual accounts. The annual accounts come once a year and show the past. In monthly data you can see sooner that the margin on one type of client has started to fall, while you can still decide what to do.

The L4 layer, positioning, is the hardest to see.

If a client chooses the company before comparing offers, it can keep its price and, with it, its margin. If the company is placed next to five others and judged only on price, the margin is much harder to defend. Positioning decides whether the rest of the company works to keep the price or only to bring volume.

Three principles from our methodology apply directly to margin.

The first says that a client rarely has a marketing problem as such. More often what is missing is infrastructure, systems, channels, positioning and a brand foundation, and marketing done on a poor base burns money. A falling margin is diagnosed on the layers, before any new campaign.

We discuss this in our article on extra money put on a broken foundation. Our view is that a new budget raises volume without repairing costs. If the foundation does not hold the margin, extra volume deepens the fall.

The second principle says the budget must support development, meaning the strategy and architecture of the company. If you optimise the same channel endlessly, you soon hit a ceiling. Strategy done right lowers the real cost of winning a customer, while cost cuts and optimisations have a limit. Margin is rebuilt by changing what you sell and to whom.

The third principle is cognitive ownership.

You want your brand to be the first one clients think of when the need appears, so they come to you without being won over by ads or by price each time. The aim is a margin you do not renegotiate at every offer.

Our best example is the audit of Lactate Brădet, published as a public analysis on September 7, 2026 (see our audit of Lactate Brădet, published in Romanian). Every figure comes from the company’s public financial statements (tax ID 14062704). Sales were 27.6 million lei in 2023, 33.6 million in 2024 and 34.6 million in 2025.

Net income fell from 2.04 million lei in 2023 to 1.98 million in 2024 and to 0.36 million in 2025. The margin fell from 7.4% to 5.9% and then to 1.05%, and the company has 71 employees in 2025. Revenue rose by 7 million lei, and profit fell by 1.68 million.

In the audit we also analysed public contracts. The value of public contracts won by the company, meaning the contracted value from SEAP via transparenta24.ro and not annual revenue, grew from 3.6 million lei in 2023 to 91.1 million lei in 2025. Our verdict was that growth through tenders came with a much lower margin.

At the 2023 margin, the same revenue would have produced 2.56 million lei of profit, against 0.36 million in reality. In the audit we proposed keeping the volume that tenders can support and rebuilding the margin through a flagship product that generates its own demand.

The case also reads through the layers in the figure. On L1, tender volume came with a low margin. On L2, measuring margin by contract type would have shown earlier where it was falling. On L4, a flagship product gives the company its own reason to be chosen, one that does not depend on the lowest tender price.

The same pattern appears when growth depends on the founder, and our article on the founder bottleneck looks at it from that angle. Here we look at margin. When you win volume without a system to carry it, the cost shows in profit.

How do you check your net profit margin in 15 minutes?

You can check it in 15 minutes if you have the annual accounts or the trial balance for the last two years. You compare the pace of sales with the pace of net income, calculate the margin on the extra sales and set it against your industry. Five steps fit on one page of calculation.

1. Compare the pace of sales with the pace of net income. Calculate how much sales grew between the two years and how much net income grew. If sales rose and net income did not, you resemble the 37.1% of companies above €3 million that sold more in 2025 and earned less. If only the margin fell, you resemble the 49.6%.
2. Calculate the margin on each extra leu sold. Divide the growth in net income by the growth in sales. For example, if sales rise from 10 to 12 million lei and net income from 600,000 to 640,000 lei, the extra 2 million sold brought 40,000 lei, which is 2%, against an old margin of 6%.
3. Compare the pace of hiring and of debt with the pace of sales. If employees or debts grow faster than sales, your numbers resemble those of the companies that earned less. In our group of large companies, 27.8% of those with lower profit hired beyond the pace of sales, against 17.0% of the others.
4. Put your margin next to the median of your industry. Use the table from the section on a good margin. If your industry is missing, find one with a similar cost structure and use it as a reference, saying openly that this is a proxy.
5. Find out where the growth came from. Note which clients, contracts and channels brought the extra sales. If most of it comes from one low-margin type of contract, you have found where margin is lost, as in the Lactate Brădet case.

In steps 1 and 2 you do calculations. In steps 3 and 4 you compare yourself with public benchmarks. Step 5 sends you back to your own company and is the most useful, because the answer differs from one company to the next. Diagnosis starts here, and the figures above give you the reference points.

Steps 1 and 2 show whether you have a problem. The other three help you see where it is. Sales and profit can grow at the same pace, so steps 1 and 2 look good. Step 5 can still reveal a risk, if all the growth comes from a single client.

The rule in the box is deliberately simple. A single red signal can belong to an unusual year. Two red signals show a pattern, and a new campaign amplifies exactly what does not work.

Two red signals mean diagnosis comes first. The exercise shows whether you need an audit. If the figures reassure you, carry on with your plan. If they raise questions, you already know what to check and where to start.

Frequently asked questions

How can you improve net profit margin?

Net profit margin improves through four moves. You cut direct costs without damaging the product, drop low-margin clients and contracts, sell more of the high-margin products, and build a reason to be chosen that lets you charge more. The last one lasts longest, and it works without lowering the price.

The first three moves have a ceiling, because no cost can be reduced forever. The fourth moves the comparison from price to value. For that you need positioning, so that the client picks your brand before comparing offers.

What is the definition of gross profit margin?

Gross profit margin is the percentage of revenue left after subtracting only the direct cost of the goods or services sold. You calculate it by dividing gross profit by revenue. It shows whether the selling price covers the product with a good reserve, before running costs, interest and tax.

It is the first level to watch. It does not show what the owners keep, since operating expenses, interest and tax are not yet included.

What is the percentage of profit made from revenue?

The percentage of profit made from revenue is the net profit margin, meaning net income divided by revenue. Across Romania’s whole economy in 2025 it was 5.94% (our calculation, across 723,827 companies). That means about 6 lei of profit for every 100 lei sold.

At company level the percentage varies widely by industry and size. That is why you need your own margin, calculated from your own accounts, and the median of your industry.

What does net profit margin mean?

Net profit margin means the part of each unit of sales that remains after every cost has been paid, including operating expenses, depreciation, interest and tax. It is the final figure on the profit and loss account, expressed against revenue. It shows how much of your sales the owners actually keep.

A rising margin means each sale leaves more behind. A falling one means each sale leaves less behind, even if revenue looks strong.

What is a good net profit margin?

A good net profit margin is one above the median of your industry. For companies above €3 million, the 2025 median is 4.58% (our calculation), and across industries it ranges from 2.92% to 9.57%. Trade, for example, has a net margin of 3.2% (National Bank of Romania, June 2025).

A 4% margin is good in trade and weak in construction. Use the industry table as a reference and compare yourself with your own group.

What is EBITDA margin?

EBITDA margin is the percentage of revenue left after subtracting direct cost and running expenses, before depreciation, interest and tax. You calculate it by dividing EBITDA by revenue. It shows how much day-to-day activity earns, without the effect of investment and financing.

This margin is useful when you compare companies with different debt or investment structures. It does not show what the owners keep, because it includes neither interest nor tax.

What does negative EBITDA mean?

Negative EBITDA means the core business does not cover even its direct costs and running expenses. The company spends more to operate than it collects from sales, before depreciation, interest and tax.

A negative value can appear in a new company that is growing its sales volume, or in a mature one whose costs have slipped out of control. The causes differ, and steps 2 and 5 of the exercise in this article help you see what is happening in your company.

What to do once you have the numbers

Higher sales no longer bring higher profit automatically. The annual accounts show how much of the sales was left, and monthly data shows the direction before the next annual accounts. The 15 minutes of the exercise cost less than a week of campaign, and they can change how you use the next budget.

If you want a verdict on your own company, read by someone outside it, ask for a diagnostic and we will show you, in your own figures, where the margin is lost.