Where gross margin looks only at delivery costs, net margin accounts for the whole business: salaries, rent, software, marketing, professional fees, loan interest and tax. Net profit divided by revenue gives the percentage. It is the most complete single measure of whether the business, as currently run, makes money — and it is often sobering next to a flattering gross figure.
For a founder it answers the plain question: for every pound or dollar the business takes in, how much does it actually keep. That number decides whether growth is worth pursuing, because scaling a negative net margin simply loses money faster. It is also where owner compensation deserves honesty. If you pay yourself nothing and report a 20% net margin, the real margin is closer to zero once a market-rate salary for your role is included — and any buyer will make that adjustment for you.
A concrete example: your shop takes $300,000 a year with $180,000 of cost of goods, so a 40% gross margin and $120,000 of gross profit. Rent, staff, insurance, software and accountancy come to $86,000, leaving $34,000 before tax. After $7,000 of tax, net profit is $27,000 — a 9% net margin. The gross figure said 40%, the business kept 9%, and that gap is where every operating decision actually lives.