Profit margin
without the guesswork.
Enter sales, direct costs and total costs for the same period. See your gross and net margins, plus the difference between margin and markup.
Calculate your margins
Use figures in one currency and on a consistent VAT basis. Total costs must include direct costs. Include tax in total costs only if you want an after-tax result.
What each result means
| Measure | Formula | What it tells you |
|---|---|---|
| Gross profit | Revenue − direct costs | What remains before overheads and other costs. |
| Gross margin | Gross profit ÷ revenue × 100 | The proportion of sales left after direct costs. |
| Net profit (on your chosen basis) | Revenue − total costs | What remains after every cost you included. |
| Net margin | Net profit ÷ revenue × 100 | The proportion of sales left on the cost basis you entered. |
| Markup on direct costs | Gross profit ÷ direct costs × 100 | Profit relative to cost, rather than sales. |
Worked example: £10,000 sales
Suppose a fictional business has £10,000 revenue, £6,000 direct costs and £8,500 total costs. Gross profit is £4,000 and gross margin is 40%. Net profit on that cost basis is £1,500 and net margin is 15%. Markup on direct costs is about 66.7%.
The £8,500 already includes the £6,000. Adding direct costs a second time would understate profit. A 40% margin is also not a 40% markup: the denominator is different.
Before you use the answer
- Compare matching periods. A monthly sales figure and annual costs do not produce a meaningful margin.
- Keep VAT treatment consistent. These fields do not calculate or remove VAT for you.
- Use the direct-cost classification in your accounts. It varies by business and should be consistent between periods.
- State whether your net result is before or after tax. The calculator cannot infer omitted costs.
- A negative margin means the costs entered exceed sales. Zero revenue has no defined percentage margin.
What is a good profit margin?
There is no single target suitable for every business. Compare your own trend, pricing model and cost structure before using an industry benchmark. A change may reflect sales mix, supplier prices, discounts or cost classification; the percentage alone cannot establish the cause.
Profit is not the same as cash in the bank. Timing of customer payments, stock purchases and other cash movements can differ from when income and costs enter the accounts. Use the monthly review worksheet to record what changed and what you will investigate.
Prepared by Treleto · Reviewed 11 November 2026
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