Calculate profit margins for your business. Work out gross profit margin, markup percentage and profit amount from cost price and selling price. Updated for 2026/27.
Profit margin shows profit as a percentage of the selling price. Formula: (Selling price - Cost) ÷ Selling price × 100. A 33.3% margin means for every £1 of sales, you keep 33.3p as profit.
Markup shows profit as a percentage of the cost price. Formula: (Selling price - Cost) ÷ Cost × 100. A 50% markup means you add 50% to the cost to get the selling price.
If something costs you £100 and you sell it for £150:
Understanding profit margins helps you price products correctly, compare profitability across items, and ensure your business is sustainable. Different industries have different typical margins — retail often runs on 20-50%, whilst services can achieve higher margins.
Gross profit margin is calculated before operating expenses. Net profit margin accounts for all expenses including overheads, tax and interest. This calculator shows gross profit margin based on cost and selling price.
Profit margins vary dramatically by industry and business model, so "good" depends entirely on context. Supermarkets typically operate on razor-thin net margins of 2-3% but make money through high volume — they sell enormous quantities to compensate for low per-item profit. Luxury retail often runs 50-60% gross margins because customers pay premium prices for brand, exclusivity, and experience. Software and digital products can achieve 80-90% margins after development costs are covered as there's minimal cost to serve additional customers. Professional services like consulting or freelancing aim for 30-50% net margins after accounting for time and overheads. Restaurants typically target 60-70% gross margins on food (meaning £10 dish costs £3-4 in ingredients) but net margins of only 10-15% after rent, staff, and utilities. Manufacturing margins vary widely: high-volume commodities might run 10-15% while specialized equipment could be 40-50%. As a rough benchmark, gross margins under 30% require extremely efficient operations and high volume to sustain, 30-50% is typical for many businesses, and above 50% suggests premium positioning or low direct costs. However, high gross margin doesn't guarantee profitability if operating costs are excessive. A business with 70% gross margin but spending 80% of revenue on marketing and overheads loses money, whilst one with 25% gross margin and tight cost control can be very profitable. Focus on your specific industry benchmarks and ensure your margin covers operating expenses with enough left for sustainable profit. If competitors typically achieve 35% margins and you're stuck at 20%, investigate whether your costs are too high, prices too low, or if you're in a uniquely disadvantaged position requiring strategic changes.
Both matter but they tell different stories and require different strategies. High margin products earn more per sale relative to effort and capital invested: selling one luxury watch at 60% margin (£3,000 cost, £7,500 sale, £4,500 profit) beats selling three budget watches at 25% margin (£100 cost, £133 sale, £33 profit each = £99 total). High margins provide buffer against cost increases, allow flexibility in pricing and promotions, and require fewer sales to break even. However, high margin products often have lower sales volume due to price sensitivity and smaller market size. Volume businesses sacrifice margin for sales velocity: selling 10,000 units at 15% margin (£150,000 profit) beats selling 100 units at 60% margin (£40,000 profit assuming £4,000 profit per unit). The optimal strategy depends on market position, capital availability, and capacity constraints. If you're capital constrained or have limited inventory space, prioritize high margin items requiring smaller investment. If you have strong distribution, brand recognition, or manufacturing scale, volume with lower margins may generate more absolute profit. Many successful businesses use a portfolio approach: loss leaders or low-margin staples drive traffic and volume while high-margin premium items boost profitability. Amazon famously operates on thin margins but huge volume, whilst luxury brands do the opposite. For most small businesses, aiming for healthy margins (35-50%) on your core products while using strategic low-margin offers for customer acquisition provides balance. Track both metrics: margin percentage shows efficiency and sustainability, whilst absolute profit determines whether you can actually pay yourself and grow the business.
Margin improvement requires increasing prices, reducing costs, or both, without destroying demand. Price increases work when justified by added value, market conditions, or repositioning: improve product quality, add features or services that command premium pricing, and emphasize benefits that justify higher cost. Gradual increases of 3-5% annually often go unnoticed especially if timed with product updates. Bundle products or services to increase average transaction value while maintaining perceived value — £100 package of three items feels better than £40 each even if total is higher. Create tiered pricing with budget, standard, and premium options allowing margin variation while serving different customer segments. Cost reduction preserves margins without customer-facing changes: negotiate better supplier terms through volume commitments or alternative sourcing. Improve operational efficiency to reduce waste, labor, or overhead. Automate repetitive processes. Optimize inventory to reduce carrying costs and deadstock. Reduce returns and customer service issues through quality improvements. Carefully prune low-margin, high-effort products that consume resources disproportionate to profit. Focus sales efforts on high-margin items through staff training, positioning, and marketing. Create subscription or membership models generating predictable recurring revenue at higher lifetime value. Reduce discounting by emphasizing value over price and qualifying leads better to attract less price-sensitive customers. Consider that 10% cost reduction has the same margin impact as 10% price increase but is invisible to customers. However, don't cut costs that impact quality or customer experience as this destroys long-term value. The best margin improvements come from genuine value creation: better products, superior service, unique positioning, or operational excellence that customers recognize and reward.
A shop buys a jacket for £40 and sells it for £100. Profit = £100 - £40 = £60. Profit margin = (£60 / £100) × 100 = 60%. Markup = (£60 / £40) × 100 = 150%. This 60% gross margin must cover store rent, staff wages, utilities, marketing, and leave net profit. If operating costs are 45% of revenue (£45), net profit margin is 15% (£15 profit per £100 sale). Selling 200 jackets monthly generates £12,000 revenue, £3,000 net profit before tax.
A consultant charges £800 daily but has £200 expenses (travel, software, insurance, office share). Gross profit = £800 - £200 = £600. Gross margin = 75%. Working 15 billable days monthly generates £12,000 revenue, £9,000 gross profit. After £2,000 additional overheads (accountant, professional development, unbillable admin time), net profit is £7,000 or 58% net margin. This high margin business model scales through productization (courses, templates) or hiring associates.
Product A: £20 cost, £30 sale price, £10 profit, 33% margin. Product B: £80 cost, £100 sale price, £20 profit, 20% margin. Product A has higher margin but B delivers more absolute profit per sale. If both require similar effort to sell, prioritize B. However, if you have limited capital, A allows 4× inventory for the same investment. If B sells twice as fast due to demand, it generates profit faster. Context determines which to prioritize.
Remember to account for VAT correctly in your calculations — if your £100 selling price includes VAT, the ex-VAT price is £83.33, which is what you should use for margin calculations against your ex-VAT costs. Understand the difference between gross profit (revenue minus direct costs of goods sold) and net profit (revenue minus all costs including overheads, salaries, rent, marketing, and finance costs). Track contribution margin on variable costs separately from overall profitability to understand which products cover fixed costs. Build target margins into your pricing from the start rather than trying to retrofit margins onto existing prices. Consider psychological pricing: £99 sells better than £100 despite minimal difference, and prestige products can benefit from higher prices suggesting quality. Factor in payment processing fees (typically 1.5-3%), returns, damaged goods, and theft (retail shrinkage averages 1-2%) when calculating sustainable margins. Use the margin calculator in reverse: if you need 40% margin and costs are £60, selling price must be at least £100 (£60 / 0.6). Monitor margins by product category and customer segment to identify which areas are most profitable. Be cautious of high-margin one-off sales that don't represent your core business's sustainability. Regularly review supplier costs and competitor pricing to ensure margins remain competitive and viable. Consider that volume discount from suppliers can significantly improve margins: reducing costs from £50 to £45 on a £100 product boosts margin from 50% to 55% without price changes. Finally, remember that business value at exit is typically a multiple of profit, not revenue, so sustainable high margins create more valuable businesses than high revenue with thin margins.