Gross margin & markup calculator

What this calculator does

Gross margin is the profit left in every pound of sales once you've paid for the goods or services behind them. This calculator takes your revenue and your cost of sales and returns three things: gross profit in pounds, gross margin as a percentage of sales, and markup as a percentage of cost. They sound interchangeable but they aren't — and mixing them up is one of the most common, most expensive mistakes a trading business makes.

Run it on a single product to sanity-check a price, or on your whole company's figures to see the headline margin a lender or your accountant would look at first. It's built for UK limited companies that buy or make something and sell it on — retailers, wholesalers, manufacturers, trades and hospitality.

How to use it

Two figures, taken from your accounts or a single quote:

1. Revenue — the sale price, excluding VAT. Use the net figure; VAT is collected for HMRC, not yours to keep.
2. Cost of sales — the direct cost of what you sold: stock purchased, raw materials, or the labour and materials on a job. Leave out rent, salaries and overheads — those sit below the gross line.

The result is your gross profit, margin and markup. To price a product to hit a target margin, work backwards: a 40% target margin means cost should be 60% of your price, so divide the cost by 0.60 to find the price.

Margin and markup are not the same number

This is the trap. Markup is profit as a percentage of cost. Margin is the same profit as a percentage of the selling price. Because the price is always larger than the cost, the margin percentage is always lower than the markup percentage on the same sale.

A 50% markup is not a 50% margin — it's a 33% margin. A 100% markup (doubling your cost) gives a 50% margin. Businesses that set a "50% markup" believing they're keeping half of every sale are quietly leaving money on the table and under-pricing. This calculator shows both side by side precisely so that never happens to you.

The formulas in plain English

From revenue and cost:

Gross profit = revenue − cost of sales

Gross margin % = (gross profit ÷ revenue) × 100

Markup % = (gross profit ÷ cost of sales) × 100

To convert between them: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin). The reason the gross margin matters so much is that everything else — your rent, wages, marketing, loan repayments and your own drawings — has to come out of it. A thin gross margin leaves nothing to absorb a quiet month or a price rise from a supplier.

Worked example

A homeware retailer buys a lamp for £24 and sells it for £60 (both excluding VAT).

Gross profit = £60 − £24 = £36. Margin = £36 ÷ £60 = 60%. Markup = £36 ÷ £24 = 150%. Same £36 of profit, two very different-looking percentages. If the owner had set a "60% markup" thinking that meant a 60% margin, they'd have priced the lamp at just £38.40 and kept a 37.5% margin instead — over a third less profit per unit. Figures are illustrative.

Limitations to keep in mind

Gross margin stops at the cost of sales — it says nothing about whether you're actually profitable once overheads are paid. A 60% gross margin can still lose money if rent and wages are too high for the sales volume. Read it alongside your net profit and the break-even calculator to see how many sales those overheads demand.

It also assumes you've classified costs correctly; misfiling an overhead as a cost of sale flatters or flattens the margin wrongly. If a thin margin is the real problem, borrowing won't fix it — but bridging a genuine, short-term stock or seasonal gap can. The stock order funding calculator applies your margin to a specific order. This is general information, not financial advice.