Profit Margin Calculator

Margin and markup are both ways of expressing profit as a percentage, but they use different denominators — and mixing them up is one of the most common pricing mistakes small businesses make. Margin divides profit by your selling price: Margin % = (Price − Cost) ÷ Price × 100. Markup divides the same profit figure by your cost instead: Markup % = (Price − Cost) ÷ Cost × 100.

Because price is always larger than cost when you're making a profit, margin and markup are never the same number for the same sale, and markup is always the larger of the two. A classic example: something costing £50 sold for £100 has a profit of £50. As a margin, that's £50 ÷ £100 = 50%. As a markup, it's £50 ÷ £50 = 100%. Someone aiming for a "50% margin" who instead applies a 50% markup will actually land at a 33.3% margin — a meaningful shortfall that compounds across every sale in a business with tight overall profitability.

Because retail and hospitality software, supplier price lists, and casual conversation often use "markup" and "margin" interchangeably, it's worth being explicit with staff, suppliers, and your own spreadsheets about exactly which figure is being quoted before setting prices from it.

Gross profit margin is the most commonly quoted margin figure, and it only accounts for the direct cost of producing or acquiring what you sell — often called the "cost of goods sold" (COGS). The formula is: Gross Margin % = (Revenue − Cost of Goods Sold) ÷ Revenue × 100. It deliberately excludes overheads like rent, salaries not directly tied to production, marketing, and admin — those come out further down the income statement to arrive at net margin instead.

Gross margin is useful precisely because it isolates the profitability of the core product or service itself, independent of how efficiently (or inefficiently) the rest of the business is run. A business can have an excellent 60% gross margin on its products yet still be lossmaking overall if its overheads consume more than that 60% — which is exactly why gross margin and net margin need to be looked at together rather than either one in isolation.

There's no single "good" margin across the whole economy — what counts as healthy varies enormously by sector, largely driven by sales volume, competition, and how much of the price is eaten up by direct costs. UK retail businesses typically run on net margins of just 2-5%, since high sales volumes are needed to offset stock, rent, and heavy price competition. Hospitality sits a little higher at roughly 3-9% net for full-service restaurants and quick-service outlets, though delivery-only and "ghost kitchen" models can reach 10-30% net thanks to lower fixed overheads.

At the other end, professional services — consultancies, agencies, accountancy and legal practices — often achieve net margins of 15-25% or considerably more, because they're selling expertise and time rather than physical stock, so the direct cost of delivering each unit of service is relatively low. Software and other highly scalable, asset-light businesses can push net margins well above that, sometimes into the 70-80% range, since additional sales cost very little to fulfil once the product itself is built.

The practical takeaway is to benchmark your margin against businesses genuinely comparable to yours — a retailer comparing itself to a 20% software-industry margin will draw the wrong conclusion, just as a consultancy benchmarking against 3% hospitality margins would badly undersell its own healthy position.