Gross profit calculator, 2026/27

How this is calculated

Gross profit is revenue minus cost of sales, sometimes called cost of goods sold. Cost of sales covers the direct costs of what you sold: materials, direct labour, subcontractors, and for a reseller the wholesale cost of stock. It excludes indirect overheads such as rent, admin salaries, marketing and finance costs, which are deducted further down the profit and loss account to arrive at net profit.

Gross margin expresses gross profit as a percentage of revenue and is the figure most commonly compared between businesses and over time, because it strips out the effect of overhead structure and shows pure trading efficiency on each pound of sales. Mark-up, by contrast, expresses gross profit as a percentage of cost, which is the number most useful when setting a selling price from a known cost.

A retailer buying stock for £60 and selling for £100 has a gross margin of 40% but a mark-up of 66.7%, the same transaction expressed two different ways; mixing the two up is one of the most common pricing mistakes small business owners make.

Why gross margin matters

Gross margin trends are often the earliest warning sign of a pricing or supplier cost problem, appearing well before net profit or cash flow show any strain. A steadily falling gross margin with stable prices usually points to rising material or labour costs that have not been passed on.

Comparing gross margin against industry benchmarks also helps set realistic pricing and spot whether a company is systematically underpricing its work relative to competitors doing similar jobs at similar cost.

From gross profit to net profit and tax

Gross profit is only the first stage of the profit and loss account. Overheads such as rent, salaries not directly linked to production, marketing and finance costs are deducted next to arrive at operating profit, and after interest and any other income or costs you reach net profit before tax.

Corporation tax is then charged on the taxable profit, which is net accounting profit adjusted for disallowable items and capital allowances, not on gross profit itself, so a healthy gross margin does not automatically mean a low tax bill if overheads are high.

What counts as cost of sales?

Direct costs that vary with each sale: raw materials, goods bought for resale, direct labour and subcontractor costs, and delivery costs directly tied to the product. General overheads like office rent, admin staff and marketing are not cost of sales.

What is a good gross margin for a small company?

It varies enormously by sector: retailers often run at 25-45%, service businesses can exceed 60-70%, while low-margin distribution or trade businesses might sit at 15-25%. Compare your own margin over time and against direct competitors rather than a single universal benchmark.

Is gross profit the same as net profit?

No. Gross profit is revenue minus direct cost of sales only. Net profit deducts all remaining overheads, interest and tax as well, so net profit is always lower than or equal to gross profit for the same period.

Does gross profit affect my corporation tax bill?

Indirectly. Corporation tax is charged on taxable profit after overheads, adjustments and capital allowances, so gross profit alone does not determine the tax due, but a low or negative gross margin makes an overall taxable profit far less likely.