Margins tell you how much of each sale you actually keep. This guide explains gross and net margin, how to calculate them, and what healthy looks like.
Published July 2026 · Updated July 2026
Gross margin is your sales minus the direct cost of what you sold (cost of sales), expressed as a percentage of sales. It shows how profitable your core product or service is before overheads.
Net margin takes gross profit and subtracts all your other costs, rent, wages, software, marketing, to show the true percentage you keep. It is the bottom line as a proportion of sales.
A big turnover with a thin margin can make less money than a smaller, higher-margin business. Margins expose creeping costs and underpricing that a headline sales figure hides.
You can lift margins by raising prices, reducing direct costs, or shifting your mix towards higher-margin work. Even a small percentage-point gain drops straight to profit.
It varies hugely by industry, so compare with similar businesses. The most useful benchmark is your own trend over time.
Use our free gross and net margin calculators, enter your figures and they work out the percentages instantly.
Usually rising costs or discounting. Margins catch this early, which is why they matter more than turnover alone.
This guide is general information for UK small business owners, not accounting, tax or legal advice. Rules, rates and thresholds reflect 2026/27 and change over time; always check the linked official source or a qualified adviser for your situation.