Profit Margin Calculator
Enter your revenue and costs to find your gross profit, gross margin %, net profit, and net margin %.
Reviewed by Richard Ross · Last updated April 2026
How Profit Margin Calculator works
Gross profit margin
Gross profit = Revenue − Cost of Goods Sold (COGS). Gross margin % = (Gross Profit ÷ Revenue) × 100. COGS includes direct costs: materials, direct labour, and manufacturing overhead — but not selling, marketing, or admin expenses.
Net profit margin
Net profit = Gross Profit − Operating Expenses. Net margin % = (Net Profit ÷ Revenue) × 100. Operating expenses include indirect costs such as rent, utilities, salaries, and marketing.
Margin vs markup
Margin is expressed as a percentage of selling price. Markup is expressed as a percentage of cost. A 50% markup gives a 33% margin. A 50% margin requires a 100% markup. The two are often confused — margin is the more common metric in financial reporting.
What is a good margin?
Average margins vary significantly by industry. Software and SaaS businesses often achieve gross margins above 70%. Retail typically ranges from 20–50%. Manufacturing may be 10–30%. Service businesses often achieve high gross margins but lower net margins due to labour costs.
UK context: Corporation Tax and profit margins
For UK limited companies, Corporation Tax is charged on taxable profit (not gross margin). As of 2024–25, the main rate is 25% for companies with profits over £250,000, with a small profits rate of 19% applying below £50,000 and marginal relief between the two thresholds. Understanding net margin before Corporation Tax is therefore essential for planning. Sole traders and partnerships pay Income Tax and National Insurance on profits instead.
Worked example: UK ecommerce retailer
An online retailer generates £50,000 in monthly revenue. COGS (product cost, packaging, fulfilment) total £30,000, giving a gross profit of £20,000 and a 40% gross margin. Operating expenses (platform fees, advertising, salaries) total £12,000, leaving a net profit of £8,000 — a 16% net margin. After 25% Corporation Tax (£2,000), the retained profit is £6,000 per month.
Source: HMRC — Corporation Tax rates, GOV.UK (gov.uk/corporation-tax-rates). HMRC — Business profit and expenses (gov.uk). ICAEW — Profit and loss account guidance.
Frequently asked questions
What is the difference between gross and net margin?
Gross margin only deducts direct production costs (COGS). Net margin deducts all costs including operating expenses, giving a truer picture of overall profitability.
How do I improve my profit margin?
Either increase revenue (raise prices or volume) or reduce costs (negotiate better COGS, cut operating expenses). Raising prices often has the largest impact since every extra pound of revenue drops straight to margin.
Is a higher margin always better?
Not necessarily. A low-margin, high-volume business (e.g., a supermarket) can generate more total profit than a high-margin, low-volume business. Total profit = revenue × margin.
What is a good gross margin for a UK small business?
This varies by sector. Services businesses (consulting, agencies) typically achieve 40–70% gross margins. Product-based businesses are more typically 30–50%. The key benchmark is whether margin is sufficient to cover operating expenses and generate a profit.
How does VAT affect my profit margin calculation?
If you are VAT-registered, always calculate margin using net (ex-VAT) figures for both revenue and costs. VAT collected on sales is not your income — it is collected on behalf of HMRC. Including VAT in your revenue figure will artificially inflate your margins.
What is the difference between profit margin and markup?
Profit margin is expressed as a percentage of the selling price (revenue). Markup is expressed as a percentage of cost. A 40% markup on a £100 cost gives a £140 selling price and a 28.6% margin — not 40%. Always clarify which metric you are using when discussing profitability.
What is a good profit margin for a UK business?
A "good" margin depends heavily on the industry. Retail businesses typically achieve net margins of 2-5%, while software and professional services can reach 20-40%. Gross margins for retail might be 30-50%, while manufacturing 20-40%. EBITDA margins of 10-20% are considered healthy across most sectors. Compare your margin against industry benchmarks using Companies House data or industry association reports rather than a generic number.
What is the difference between gross margin and net margin?
Gross margin deducts only the direct cost of goods sold (COGS) from revenue — it shows how profitable your core product or service is before overhead. Net margin deducts all costs including overheads, salaries, marketing, depreciation, interest, and tax — it shows overall business profitability. A business can have a healthy 60% gross margin but a 5% net margin if overheads are high. Both are important for different decisions.
How does margin differ from markup?
Margin and markup both express the relationship between cost and price, but from different perspectives. Margin is profit as a percentage of selling price (profit ÷ revenue). Markup is profit as a percentage of cost (profit ÷ cost). A product costing £50 and selling for £100 has a 50% margin but a 100% markup. Confusing the two leads to pricing errors — always clarify which basis is being used in financial discussions.
How can I improve my profit margin?
The two levers are increasing revenue (price or volume) or decreasing costs. Pricing power comes from product differentiation, customer loyalty, or a premium positioning. Cost reduction comes from supplier negotiations, operational efficiency, reducing waste, and economies of scale. For service businesses, utilisation rate (billable hours as a percentage of available hours) is often the biggest driver. Even a 1-2 percentage point improvement in gross margin flows directly to the bottom line.
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