Profit Margin Calculator
Gross margin, net margin and markup from your revenue and costs, and why the three are not interchangeable.
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- Formula and worked example included
Profit Margin Calculator
Enter your figures to see results.
What is profit margin, in plain terms?
Profit margin is the share of each sale you actually keep. If you sell something for £100 and it cost £60 to buy and sell, your gross margin is 40%. Once rent, staff and everything else are paid, what is left is your net margin, the number banks, buyers and your accountant look at first.
How to use this calculator
- Enter your sales for the period, excluding VAT.
- Enter the direct cost of what you sold: stock, materials, direct labour, delivery.
- Add your other running costs to see net margin as well as gross. Leave it blank for a quick gross margin check.
What your result means
How to read the figure, what counts as normal, and what to do about it.
Gross margin, net margin and markup: three different questions
Gross margin asks: after paying for what I sold, how much of each pound of sales is left to run the business? It is the number to watch when you set prices or negotiate with suppliers.
Net margin asks: after everything, how much of each pound is profit? It is the number your accountant, lender and any buyer of the business will look at first.
Markup asks a different question altogether: how much did I add on top of cost? It is the trade's way of setting prices, and it is the source of most margin confusion. A 50% markup on a £10 item gives a £15 price and a £5 profit, which is a 33% margin, not 50%.
Typical UK margins by sector
Margins vary enormously by business model, so compare yourself with similar businesses, not with a general average. Indicative ranges for established UK small and medium businesses:
| Sector | Gross margin | Net margin |
|---|---|---|
| Food retail / convenience | 20–30% | 1–4% |
| Restaurants and cafés | 60–70% | 3–8% |
| Construction and trades | 20–35% | 4–10% |
| E-commerce (own brand) | 40–60% | 5–15% |
| Professional services | 50–80% | 10–25% |
| Software / SaaS | 70–90% | −20% to 30% |
| Manufacturing | 25–40% | 5–12% |
A falling gross margin usually means supplier prices have risen faster than your prices, or the sales mix has shifted to lower-margin lines. A falling net margin with a steady gross margin means overheads are growing faster than sales.
Using margin to set prices
If you know the margin you need, work backwards: Price = Cost ÷ (1 − target margin). To make a 40% margin on something that costs £30, the price is 30 ÷ 0.6 = £50. Adding 40% to cost instead (£42) would leave you a 28.6% margin, a common and expensive mistake. The discount calculator shows what happens to that margin when you run a promotion.
Worked example: an online homeware shop
Last year the shop took £120,000 in sales (ex VAT). Stock, packaging and postage came to £72,000. Rent, two part-time staff, software and marketing cost £30,000.
Gross profit = 120,000 − 72,000 = £48,000, a 40% gross margin.
Net profit = 48,000 − 30,000 = £18,000, a 15% net margin.
Markup on cost = 48,000 ÷ 72,000 = 66.7%. If the owner had been "adding 40%" to cost, prices would be too low for a 40% margin. The calculator makes the difference visible.
Frequently asked questions
What is a good profit margin for a small business in the UK?
A net margin of 10% is healthy for most trading businesses, 5% is thin and 20% or more is strong. Service businesses with few direct costs should aim higher. Compare against your own sector using the table above rather than a general figure.
Why is my gross margin high but I have no money?
Gross margin ignores overheads, tax, loan repayments, stock bought but not yet sold and customers who have not yet paid. Cash flow and margin are different measurements; a profitable business can still run out of cash.
Should direct labour go in cost of sales or operating costs?
If the labour is only incurred when you make a sale (a fitter on a job, a chef per cover) it belongs in cost of sales. Salaried staff who are paid whether or not you sell anything are an operating cost.
Does margin include Corporation Tax?
Net margin as calculated here is before tax (operating margin). Post-tax margin will be lower by the Corporation Tax rate that applies to your profits: 19% for small profits, 25% at the main rate, with marginal relief in between.
How do I raise my margin without raising prices?
Renegotiate or switch suppliers, cut waste and returns, shift the sales mix towards higher-margin lines, reduce discounting, and review overheads that have crept up. Small percentage gains on each add up quickly.
The maths behind this calculator
For anyone who wants to check the working or rebuild it in a spreadsheet.
The formulas
Gross profit = Revenue − Cost of sales Gross margin = Gross profit ÷ Revenue × 100 Net profit = Gross profit − Operating costs Net margin = Net profit ÷ Revenue × 100 Markup = Gross profit ÷ Cost of sales × 100 To convert: Margin = Markup ÷ (1 + Markup) Markup = Margin ÷ (1 − Margin)
Assumptions and limits
- Figures should exclude VAT: VAT collected is not revenue and VAT paid on purchases is not a cost if you are registered.
- The split between cost of sales and operating costs follows normal UK accounting practice, but businesses classify some items (delivery, direct labour) differently. Be consistent from period to period.
- Owner's drawings in a sole trade or partnership are not an operating cost; a director's salary in a limited company is.
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