Know what you actually keep
Revenue is vanity; margin is sanity. A business doing £500,000 in sales with a 4% margin keeps £20,000. A business doing £120,000 with a 30% margin keeps £36,000 — nearly twice as much from less than a quarter of the sales. Yet most small businesses track revenue obsessively and margin barely at all.
This calculator computes gross margin (revenue minus cost of goods sold) and net margin (revenue minus all costs), shows the formulas step by step, and lets you work backwards: enter the margin you want and the costs you have, and it tells you the revenue you need.
Margin is profit as a share of the selling price; markup is profit as a share of cost. A 50% markup equals a 33.3% margin - they are not the same number.
How to use it
- Enter your revenue for the period (a month, a project, a product line — any period, as long as revenue and costs cover the same one).
- Enter your cost of goods sold (COGS): the direct costs of what you sold — materials, direct labour, delivery.
- Enter your operating expenses: rent, software, marketing, admin, everything else.
- Read your gross profit, gross margin %, net profit and net margin %.
- Flip to target mode: enter a desired margin and your costs to find the revenue target.
What it calculates and how the formulas work
| Measure | Formula |
|---|---|
| Gross profit | Revenue − cost of goods sold |
| Gross margin | (Gross profit ÷ revenue) × 100 |
| Net profit | Revenue − COGS − operating expenses |
| Net margin | (Net profit ÷ revenue) × 100 |
| Revenue needed for target margin | Total costs ÷ (1 − target margin as decimal) |
Assumptions:
- Margin is always expressed as a percentage of revenue (the selling price), not of cost. This is the single most common confusion in small-business pricing — margin and markup are different things (see the markup calculator).
- COGS vs operating expenses is your call: the split matters less than including all costs somewhere. Freelancers with no “goods” can put subcontractor and tool costs in COGS.
- The tool reports one period at a time. Margins move with volume, so a single quiet month is not your business’s margin — track the trend.
Worked example: online candle shop
Amara sells handmade candles online in the UK. Last month:
- Revenue: £8,400
- COGS (wax, jars, wicks, packaging, postage): £2,940
- Operating expenses (Etsy fees, ads, studio rent share, insurance): £2,100
The calculator shows:
- Gross profit: £8,400 − £2,940 = £5,460 → gross margin 65%
- Net profit: £5,460 − £2,100 = £3,360 → net margin 40%
Healthy. But Amara wants to know what happens if ad costs rise £600 next month: net profit falls to £2,760, net margin to 32.9%. She can model it before spending, instead of discovering it after.
Target mode: Amara wants a 45% net margin with total costs of £5,040. Revenue needed = £5,040 ÷ (1 − 0.45) = £9,164 — about £764 more in monthly sales.
Important considerations and limitations
- “Good” margins depend entirely on industry. Software can run 70–80% gross margins; grocery retail runs 2–3% net. Compare yourself to your industry, not to a universal benchmark.
- Margin is not cash. A 40% net margin with customers paying in 90 days can still leave you unable to make rent. Watch cash flow alongside margin.
- Do not confuse margin with markup. A 50% markup on cost is a 33.3% margin on price. Pricing with the wrong one quietly gives away profit — the markup calculator explains the difference with examples.
- One period can mislead. Seasonal businesses should compare like-for-like periods (this October vs last October), not adjacent months.
- Browser-local: your financial figures never leave your browser.
Frequently asked questions
How do I calculate profit margin?
Subtract all costs from revenue to get profit, then divide profit by revenue and multiply by 100. For example, £3,360 profit on £8,400 revenue = 40% net margin.
What is the difference between gross margin and net margin?
Gross margin covers only the direct cost of what you sold (revenue minus COGS). Net margin subtracts everything, including rent, marketing and admin. Gross margin shows pricing power; net margin shows whether the business actually works.
What is a good profit margin for a small business?
It depends on the industry. Service businesses often target 20–40% net; retail and hospitality frequently run 5–15% net; digital products can exceed 60%. The honest answer is: better than last year, and better than your direct competitors.
What is the difference between profit margin and markup?
Margin is profit as a percentage of the selling price; markup is profit as a percentage of cost. A product costing £50 sold for £100 has a 100% markup but a 50% margin. Mixing them up is one of the costliest small-business maths errors.
How do I work out what revenue I need for a target margin?
Divide your total costs by (1 − target margin as a decimal). Costs of £5,040 and a 45% target → £5,040 ÷ 0.55 = £9,164 revenue needed.
Can freelancers use this calculator?
Yes. Treat your subcontractor costs and tools as COGS and everything else as operating expenses. Your “revenue” is what you billed. Many freelancers discover their real net margin is far lower than the hourly rate suggested.
Is my financial data uploaded anywhere?
No. All calculations happen locally in your browser.
Related tools
External references
- SBA — Plan your business (includes cost structure guidance)
- IRS — Recordkeeping for small businesses
- GOV.UK — Keeping business records
This tool provides estimates for guidance only and is not professional financial, tax, or legal advice.