Profitability Analysis
Profit Margin Calculator
Analyse gross and net margin from revenue, cost of goods and overheads. Make data-driven pricing decisions.
trending_upFinancials
Operating expenses beyond cost of goods.
insightsMargin Snapshot
Gross Margin
35.00%
£3,500.00 gross profit
Net Margin
20.00%
£2,000.00 net profit
Gross Profit£3,500.00
Net Profit£2,000.00
Equivalent Markup53.85%
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Track Revenue
Log all sales in the period — net of VAT and refunds.
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Capture COGS
Include direct production costs: materials, freight and direct labour.
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Improve Margin
Use the breakdown to spot which lever moves margin most.
Common Questions
What is a healthy net margin for my industry?expand_more
Rough UK benchmarks: professional services 15–25%, software/SaaS 20–40%, restaurants 3–8%, hairdressers 8–12%, construction 2–6%, ecommerce 5–10%, agencies 10–20%. These are net margins after all costs. If yours is half the typical figure, the issue is usually pricing or overhead — rarely volume. Compare against published industry reports (e.g. ICAEW benchmarks or your trade association) rather than guessing.
Should I include VAT in revenue?expand_more
No. Always work with net (excl. VAT) revenue. VAT collected from customers is a flow-through to HMRC, not income — including it inflates revenue and distorts every margin metric. Same on the cost side: use net costs if you can reclaim the VAT. The exception is non-VAT-registered businesses where VAT on purchases is a real cost and stays in the cost figure.
What's the difference between gross and net margin?expand_more
Gross margin = (revenue − direct costs) ÷ revenue. It measures pricing strength on each unit sold. Net margin = (revenue − all costs including overhead, salaries, tax) ÷ revenue. It measures whether the whole business is viable. A common red flag: healthy gross margin (40%+) but tiny net margin (2%) means overhead is bloated relative to scale.
Why is my margin shrinking despite growing sales?expand_more
Three usual culprits: (1) discounting to win volume — every 5% discount needs ~17% more units to keep gross profit flat; (2) cost creep that outpaces price rises (raw materials, wages, software subscriptions); (3) hidden overhead growth (extra hires, larger premises) that doesn't scale revenue 1:1. Track gross margin monthly, not just revenue, to catch this early.
How do I improve net margin without raising prices?expand_more
Highest-leverage moves for SMBs: renegotiate top 3 supplier contracts annually, audit recurring software/SaaS spend (most businesses pay for 30%+ they don't use), shift fixed costs to variable where possible (freelance vs. employed), drop your worst-performing 10% of customers (they often consume 30% of support time), and review payment terms — getting paid 15 days faster cuts working-capital interest cost meaningfully.