e.g. salaries, rent, utilities — excluding COGS
e.g. interest, tax, one-off items
Enter revenue and cost of goods sold to calculate your margin.
Profit margin expresses profit as a percentage of revenue. There are three versions — gross, operating, and net — each stripping out a different layer of costs. A higher margin means more of each pound of revenue survives as profit.
Gross margin subtracts only the direct cost of producing your goods or services (cost of goods sold, or COGS) from revenue. It tells you how efficiently you produce and price your product, before accounting for overheads. Gross margin = (Revenue − COGS) ÷ Revenue × 100. A software business typically runs 70–80%+ gross margins; a supermarket might run 25–30%.
Operating margin also deducts operating expenses — salaries, rent, marketing, depreciation — from gross profit. It shows how efficiently the business is run day-to-day, before financing costs and tax. Operating margin = (Revenue − COGS − Operating expenses) ÷ Revenue × 100. This is the number most useful for comparing businesses in the same industry.
Net margin is what's left after everything — COGS, operating costs, interest payments, and tax. It's the bottom line: the percentage of revenue that becomes actual profit. Net margin = Net profit ÷ Revenue × 100. Net margins vary enormously by industry — 5% is healthy for a retailer; 20% is expected for a pharmaceutical company.
If you know the margin you need to achieve, you can work backwards to find the required revenue or cost ceiling. This is useful for pricing decisions: if you need a 40% gross margin and your COGS is £60, the minimum selling price is £100. The reverse mode in this calculator does this automatically for each margin type.
Margin and markup both describe the relationship between cost and price, but they use different denominators. Margin divides profit by revenue. Markup divides profit by cost. A 50% markup on a £100 cost gives a £150 selling price and a 33% margin — not 50%. The two figures are never equal unless profit is zero.