Calculate all three profit margins — gross, operating and net — from your revenue and cost data. See markup vs margin, find your target price for any profit goal and compare against industry benchmarks.
| Sector | Typical Gross Margin | Typical Net Margin | Your Gross Margin |
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Profit margin is not one number — it is three, each telling a different story about your business. Gross margin reveals your pricing and production efficiency. Operating margin shows whether your cost structure is sustainable. Net margin is what the business actually earns after tax. Understanding all three — and how each compares to your industry — is essential for informed business decisions.
Revenue minus Cost of Goods Sold (COGS) as a percentage of revenue. COGS includes only direct costs that scale with sales: materials, manufacturing, direct labour, payment processing. Gross margin tells you how efficiently you produce or deliver your product or service. The higher the gross margin, the more money available to cover overheads.
Gross profit minus all operating expenses (overheads: rent, salaries, marketing, software). This measures whether your business structure is profitable before financing and tax. A positive operating margin means the core business is viable. Negative operating margin means overheads consume all gross profit — a fundamental viability problem.
Operating profit minus interest and tax. This is the bottom line — what the business actually earns. UK corporation tax is 25% on profits above £250,000 and 19% below £50,000 (marginal relief applies between these thresholds from April 2023). Net margin benchmarks vary by sector but 10–20% is generally healthy.
Markup and margin sound similar but are different. Markup = Profit ÷ Cost × 100. Margin = Profit ÷ Revenue × 100. A 50% markup gives a 33% margin. A product costing £60 sold for £90: markup = 50%, margin = 33.3%. Always clarify which metric is being discussed — they are frequently confused in supplier negotiations and pricing discussions.
Gross margin benchmarks vary by sector: SaaS/software 65–80%, professional services 40–70%, e-commerce 20–50%, retail 20–50%, manufacturing 15–35%. Net profit margins (after all costs and tax) of 10–20% are generally considered healthy. Below 5% net margin leaves little buffer. More important than the absolute margin is how it trends — consistently improving margins signal a healthy business.
Markup = (Selling Price - Cost) / Cost × 100. Margin = (Selling Price - Cost) / Selling Price × 100. A product costing £40 sold for £60: markup = 50%, margin = 33.3%. Many business owners mistakenly use markup when they mean margin, leading to underpriced products. If your target is 30% margin, you need to apply a 42.9% markup to your cost — not 30%.
Three main levers: (1) Increase prices — even a 5% price increase on a 40% gross margin product increases gross profit by 12.5%. (2) Reduce COGS — renegotiate with suppliers, improve production efficiency, reduce waste. (3) Reduce overheads — review all fixed costs annually, move to variable costs where possible. Pricing is typically the fastest and most impactful lever for mature businesses.