Profit Margin Calculator UK

Gross margin is revenue minus the direct cost of goods sold (COGS), expressed as a percentage of revenue. Net margin is revenue minus all costs including COGS, overheads, interest, and tax, expressed as a percentage of revenue. Gross margin shows production efficiency; net margin shows overall profitability after all business costs.

Margin is profit expressed as a percentage of the selling price. Markup is profit expressed as a percentage of the cost price. A product that costs £80 and sells for £100 has a margin of 20% but a markup of 25%. Many businesses accidentally confuse the two, which can lead to systematic underpricing.

Margins vary significantly by sector. Retail typically achieves gross margins of 20% to 50% with net margins of 2% to 10%. Professional services such as consultancy or law can achieve net margins of 15% to 30%. Software businesses often reach 60% to 80% gross margins. Comparing to industry benchmarks is more meaningful than using a single target figure.

The main levers are increasing prices, reducing direct costs through better supplier terms or operational efficiency, and cutting overheads. Price increases are often the most powerful lever as even a small percentage increase flows directly to profit. Reducing variable costs requires volume or renegotiation. Fixed cost reduction requires restructuring.

Pricing decisions should start with your target net margin, working backwards through all cost layers to arrive at a minimum selling price. Gross margin alone is insufficient because it ignores overheads that must be recovered across your sales volume. A contribution analysis showing how each product or service contributes to covering fixed costs helps inform pricing strategy.