Profit margin calculator, 2026/27

How this is calculated

Gross margin is gross profit, revenue minus cost of sales, expressed as a percentage of revenue, and shows how much of every pound of sales is left after direct production costs. Net margin goes a step further by also deducting overheads such as rent, admin salaries and marketing, showing how much is left after running the whole business, before interest and tax.

The gap between the two margins is, by definition, overheads as a percentage of revenue, and watching that gap over time shows whether overhead costs are growing faster or slower than sales, which gross margin alone would never reveal.

Both figures are calculated on the same revenue base, which makes them directly comparable month to month or year to year, and useful for spotting whether a profitability problem originates in pricing and direct costs, gross margin, or in the cost of running the business, the gap to net margin.

Using margins to make decisions

A falling gross margin with rising net margin suggests overheads have been cut faster than trading conditions have deteriorated, which may or may not be sustainable. A stable gross margin with a falling net margin points squarely at overhead cost growth, staff, premises or discretionary spend, as the area to review first.

Margins are also central to pricing decisions: knowing your current gross margin lets you calculate exactly how a proposed price change or cost increase would flow through to the bottom line before committing to it.

Comparing margins meaningfully

Margins are most useful compared against your own trend over time and against close competitors in the same sector, since acceptable margins vary enormously between, say, a software business and a construction subcontractor. Comparisons are only fair if cost of sales and overheads are classified consistently between periods, so a change in how costs are categorised can distort the trend even if nothing in the underlying business has changed.

What is the difference between gross margin and net margin?

Gross margin only deducts direct cost of sales from revenue. Net margin also deducts overheads, and in a full calculation, interest and tax, giving a more complete picture of overall profitability after every cost.

Why is my gross margin healthy but net margin low?

This usually points to overheads, rent, salaries, marketing or finance costs, absorbing a large share of revenue. Comparing the size of that gap over time helps identify whether overhead growth is outpacing sales growth.

What margin should I aim for?

There is no single target; it depends heavily on sector, business model and competitive position. Tracking your own margins consistently over time, and benchmarking against similar businesses, is more informative than aiming for an arbitrary percentage.

Does this calculator include tax in the net margin?

No, this net margin is before interest and corporation tax, focused purely on operating performance. Use the net profit calculator if you want an estimate of profit and margin after an indicative corporation tax charge.