What Is Operating Margin?
Operating margin is a critical financial metric used to measure a company’s efficiency in generating profit from its core business operations. It shows what percentage of revenue remains after covering operating expenses -such as wages, rent, production, marketing, and cost of goods sold (COGS) – but before deducting interest and taxes.
In simple terms, when someone asks, “what is operating margin?”, the answer is:
It’s the percentage of your revenue left over after paying all the operating costs required to run your business.
This metric is especially important for businesses that operate on thin margins—such as wholesalers, distributors, and CPG brands—because it reflects how well they manage day-to-day operations and control costs.
The Formula for Operating Margin
Here’s how to calculate operating margin:
Operating Margin = Operating Income / Revenue × 100
Operating income (also known as operating profit or EBIT) = Revenue – Operating Expenses
Operating margin is the result expressed as a percentage.
Example:
If your company generates $2,000,000 in revenue and incurs $1,700,000 in operating costs (including COGS, rent, salaries, marketing, etc.), your operating income is:
$2,000,000 – $1,700,000 = $300,000
So:
$300,000 / $2,000,000 × 100 = 15% operating margin
This means 15 cents of every dollar earned is profit from operations—before taxes or interest.
Why Operating Margin Matters in Wholesale and Distribution
In the world of wholesale distribution and B2B commerce, margins are everything. Businesses in this space often manage large volumes, thin markups, and tight competition. That’s why understanding and optimizing your operating margin can make or break long-term profitability.
Here’s why it matters:
- 💸 Profitability at scale: Even with large sales volumes, you might be losing money if your operations aren’t efficient. Operating margin reveals that hidden truth.
- ⚙️ Operational efficiency: This metric focuses only on core business activity—so you can see if you’re running lean or overspending on people, systems, or processes.
- 📈 Investor confidence: A healthy margin shows that your business is not just generating revenue—but doing so in a cost-effective way.
- 📊 Benchmarking and growth strategy: It helps compare your business with others in your industry and set realistic growth goals.
What Is a Good Operating Margin?
So, what is a good operating margin? The answer isn’t one-size-fits-all. It depends heavily on the type of business, the industry, and even the scale at which you’re operating.
Here are some general benchmarks:
| Industry | Typical Operating Margin |
| Wholesale Distribution | 3% – 7% |
| Consumer Packaged Goods (CPG) | 8% – 12% |
| Technology & SaaS | 15% – 25%+ |
| Apparel & Fashion Retail | 5% – 10% |
| Grocery / Commodities | 1% – 3% |
If you’re operating within the wholesale space and you’re seeing an operating margin above 6–7%, you’re likely in a strong position. Below 3%, however, may signal operational inefficiencies, mispricing, or poor demand planning.
Key Drivers That Affect Operating Margin
Several factors can directly impact your operating margin, especially in complex supply chains. These include:
1. Cost of Goods Sold (COGS)
Raw material prices, packaging, manufacturing costs—all contribute to COGS. The higher your COGS, the smaller your margin. Optimizing purchasing and production is critical.
2. Labor and Staffing Costs
Overstaffing or poorly trained teams can increase expenses without boosting revenue. Automating manual work and increasing field team efficiency can improve margins.
3. Inefficient Order Management
Manual errors, miscommunication, or double entry during order taking and fulfillment can lead to costly delays, returns, and wasted labor.
4. Delivery and Transportation
Without route optimization, delivery operations can become unnecessarily expensive and time-consuming. Fuel, vehicle wear, and staffing hours add up quickly.
5. Sales and Marketing Spend
Spending too much on customer acquisition without a return in recurring orders or strong AOV (average order value) can shrink your profit from operations.
How SimplyDepo Helps You Improve Operating Margin
SimplyDepo is built to help brands, wholesalers, and distributors improve efficiency across the board—which directly leads to healthier operating margins.
Here’s how:
1. Streamlined B2B Ordering
Manual order taking and back-and-forth over spreadsheets can lead to errors, miscommunication, and time loss. With SimplyDepo’s web and mobile tools, your reps and customers can place clean, accurate orders in seconds—cutting down on operational overhead.
2. Higher Productivity from Field Sales Teams
The SimplyDepo Field Sales App enables your sales team to take orders on the go, access customer history, and stay organized. More efficient reps = more orders per visit, with less time wasted.
3. Smart Product & Inventory Visibility
Get real-time access to your SKU catalog, price tiers, and customer-specific deals. Prevent over-discounting, stockouts, or duplicate orders that hurt your margin.
4. Route Optimization for Smarter Delivery
Optimize delivery routes to reduce mileage, fuel costs, and time spent on the road. This is especially critical for DSD (direct store delivery) teams with high delivery frequency.
5. Performance Insights That Drive Profitability
With SimplyDepo’s Sales Performance Insights, you can monitor sales rep performance, territory profitability, and customer order volume. Identify low-performing regions and reallocate resources for better ROI.
Long-Term Benefits of Improving Operating Margin
A stronger operating margin gives you:
- More financial stability during market fluctuations
- Room to invest in growth, tech, and product development
- Improved cash flow, which helps with vendor terms and expansion
- Competitive advantage, allowing you to offer better pricing without compromising profits
