Gross Margin Calculator
Enter a selling price and the cost of goods sold to find your gross margin — and the equivalent markup, side by side.
On £100.00 of revenue with £60.00 of cost, the profit is £40.00. That's a gross margin of 40.00% — and an equivalent markup of 66.67%.
Results update as you type.
Formula
Gross margin is profit as a percentage of revenue:
margin% = (revenue − cost) / revenue × 100.
The same gap expressed as markup divides by cost instead:
markup% = (revenue − cost) / cost × 100.
For a profitable product, markup is always the larger of the two — they only equal at zero.
When this calculator helps
Gross margin tells you what slice of every sale you actually keep before overheads, and it is one of the first numbers any UK small business needs at its fingertips. Reach for this calculator when you are setting a price for a product or service, deciding whether a line is worth stocking, or working out how a supplier price rise will bite. Enter the selling price and the cost of goods sold, and it returns the profit, the margin as a percentage of revenue, and the equivalent markup.
It earns its keep in the conversations that decide whether a business is viable: pricing a new product against a competitor, comparing the profitability of two ranges that sell at different prices, or putting a clean figure in front of a bank manager or investor. Lenders and the British Business Bank's partner funders will often ask for gross margin by line, because a healthy margin is what tells them the model can absorb a bad month.
How to read your result
The percentage is your gross profit expressed as a share of the selling price. A 40% margin means that for every £1 you take, 40p is gross profit and 60p went on the direct cost of what you sold. The higher the figure, the more cushion you have to cover rent, wages and everything else before you reach break-even.
The single most common trap is mixing up margin and markup. Margin divides profit by the selling price; markup divides the same profit by the cost. A £40 profit on a £100 item that cost £60 is a 40% margin but a 67% markup — identical pounds, two very different percentages. If you price using a markup figure while thinking it is your margin, you will systematically under-charge, because markup always looks like the larger number. Decide which one you mean and stick to it.
A worked example
Suppose you run a homeware shop and buy a lamp for £18 net of VAT, then sell it for £45 net. Your gross profit is £27, which is a margin of 60% (27 ÷ 45) and a markup of 150% (27 ÷ 18). If your supplier raises the cost to £22, the same £45 price drops the margin to about 51% — a reminder that a cost increase eats margin far faster than it eats the headline price. Seeing both figures together stops you from quietly slipping into under-pricing.
Common mistakes to avoid
Most margin errors come from comparing figures that were never calculated on the same basis.
- Confusing margin with markup, and pricing on a markup number as though it were your margin — this under-prices every sale.
- Leaving VAT in your revenue figure when you are VAT-registered; the 20% you charge belongs to HMRC, not to you, so use net figures.
- Treating gross margin as profit — it only covers direct cost of goods, not rent, wages, marketing or business rates.
- Mixing a net cost with a VAT-inclusive selling price, which inflates the margin and flatters the numbers.
VAT and the UK picture
If your turnover is above the VAT registration threshold you must charge VAT, currently at the 20% standard rate, and that VAT never forms part of your margin — you collect it on HMRC's behalf and pass it on. Always feed this calculator net-of-VAT figures so the margin reflects money you actually keep. Some goods carry reduced or zero rates, so check the rate that applies to your specific product before you net it off.
Remember too that a strong gross margin is not the same as a profitable business. Once you have your margin, the real test is whether it covers your overheads — premises, staff, business rates and marketing — and still leaves a net profit. Use the margin here as the starting point, then work down to your bottom line.
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Frequently asked questions
What's the difference between margin and markup?▾
Both measure the gap between revenue and cost — but they divide by different things. Margin is profit as a percentage of revenue (the selling price); markup is profit as a percentage of cost. So a £40 profit on a £100 sale that cost £60 is a 40% margin and a ~67% markup. Same gap, two perspectives. Retailers usually price by markup; finance teams usually report by margin. Confusing the two will under-price you (using a markup figure as if it were margin).
Is this gross margin or net margin?▾
Gross. Gross margin = (revenue − COGS) / revenue. It only deducts the direct cost of producing or sourcing what you sold (raw materials, manufacturing labour, wholesale price). Net margin deducts everything else too — overheads, salaries, rent, marketing, tax — and is typically much smaller. A 40% gross margin might be a 5–15% net margin once everything else is paid.
What's a 'good' gross margin?▾
It depends entirely on the industry. Software-as-a-service: 70–85%. Restaurants on food: 60–70% (much less on labour-heavy items). Grocery retail: 20–30%. Wholesale distribution: 10–20%. Manufacturing: 25–40%. Compare yours to the industry average — not to a generic target.
Does this account for VAT?▾
No — enter your figures net of VAT. If you're VAT-registered in the UK, the 20% you charge customers passes straight to HMRC, so it's not part of your revenue or your margin. If you're not VAT-registered, you can use VAT-inclusive figures, but be consistent: don't mix net cost with gross revenue.
How do I work out the price for a target margin?▾
If your cost is fixed and you want a target margin %, the formula is: price = cost / (1 − margin%/100). For 30% margin on a £70 cost: 70 / 0.70 = £100 selling price. The Markup Calculator does this in the opposite direction (target markup → price), but the maths is the same number from a different angle.