To calculate profit margin, divide profit by revenue and multiply by 100. If you sell something for £100 that cost you £60, your profit is £40 and your margin is 40%. The common and expensive mistake is dividing by cost instead of revenue, which gives you markup: the same £40 on a £60 cost is a 67% markup but only a 40% margin.
Profit margin = (revenue minus cost) ÷ revenue × 100. Markup = (revenue minus cost) ÷ cost × 100. They describe the same money and produce different numbers, and pricing off the wrong one is a quiet way to under-earn for years.
A quick sanity check: margin can never exceed 100%, because profit cannot be more than the revenue it came from. Markup can go far above it. If your figure is over 100%, you have calculated markup.
Gross margin takes only the direct cost of what you sold, and tells you whether the product itself works. Operating margin also subtracts running the business. Net margin subtracts everything including tax, and tells you what you actually kept.
Quote gross margin when you are asking whether the unit economics hold, and net when you are asking whether the business does. Conflating them is how a company with healthy gross margin discovers it has been unprofitable all year.
Software runs high because the cost of one more customer is close to nothing. Retail, food and agency work run thin because every sale carries real cost. Comparing yourself to a universal benchmark tells you very little.
Compare against your own sector, and watch the direction more than the level. A margin drifting down over two quarters is a more useful signal than any single figure, because it usually means costs are rising in a place nobody is looking at.
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Profit margin = (revenue minus cost) ÷ revenue × 100. Selling for £100 something that cost £60 gives £40 profit and a 40% margin. Dividing by cost instead gives markup, which would be 67% on the same numbers.
Markup is profit as a percentage of cost; margin is profit as a percentage of revenue. They are always different: a 50% markup is a 33% margin. Margin can never exceed 100%, so a figure above that means you calculated markup.
It depends entirely on the business. Software runs high because serving one more customer costs almost nothing, while retail, food and agencies run thin. Compare against your own sector and watch the direction rather than the level.
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