Profit Margin Calculator
Profit margin measures what percentage of revenue becomes profit. Gross margin is (Revenue minus COGS) divided by Revenue; operating margin deducts overheads; net margin deducts tax and interest. On £500,000 revenue, £300,000 COGS and £100,000 OPEX, gross margin is 40% and operating margin 20%. Enter your figures below for all three margins.
Figures verified against HMRC Corporation Tax rates on .
Written by James HartleyCIMA
Calculator
Total income before deducting any costs.
Direct costs: materials, direct labour, manufacturing. Required to calculate gross margin.
Indirect costs: salaries, rent, utilities, marketing, admin. Used for operating margin.
Corporation tax, interest payments. Used to calculate net profit margin.
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How Profit Margin Calculator Works
We calculate three margin levels: gross (revenue minus direct costs), operating (gross minus overheads), and net (operating minus tax and interest). Each level reveals different aspects of business efficiency.
Margin vs markup
Margin is always expressed as % of revenue. Markup is expressed as % of cost. The same profit produces a lower margin percentage than markup percentage - confusion between the two is one of the most common pricing mistakes in small business.
Frequently Asked Questions
Gross profit margin = (Revenue minus COGS) / Revenue x 100. It measures how efficiently a business produces its goods or services. A 40% gross margin means 40p of every £1 in revenue is left after direct production costs. Typical gross margins vary widely by industry: software can be 70-80%, retail 20-40%, manufacturing 10-30%.
Margin is profit as a percentage of selling price. Markup is profit as a percentage of cost. A product costing £60 sold for £100 has a 40% margin but a 66.7% markup. When pricing products, decide which you're using. A 50% markup gives a 33.3% margin, not 50%.
It depends heavily on industry. Software and professional services may target 15-25% net margins; retail 2-5%; hospitality 3-8%; manufacturing 5-10%. What matters most is whether your margin is improving over time and how it compares to industry benchmarks.
Margins can be improved by: increasing prices (even 5% on pricing can dramatically improve margin), reducing COGS (supplier negotiation, materials optimisation), cutting operating costs without harming quality, or shifting product mix toward higher-margin offerings. Margin analysis helps identify where the biggest improvement opportunities lie.
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Official Rates Used
This calculator uses official HMRC rates for 2026/27. View the current rates at GOV.UK:
Rates last verified:
Disclaimer: This calculator provides estimates based on standard HMRC rates for 2026/27. Results may vary based on individual circumstances. This is not financial advice. Always consult a qualified accountant or CIMA-qualified financial adviser for personal tax matters.