How to Calculate Profit Margin for Your Products

Knowing your profit margin is the difference between guessing and managing. Two products can sell the same number of units and bring in the same revenue — and one of them can be making you four times more money. The only way to tell is to calculate the margin.

This guide walks through the formulas, real examples, healthy ranges by industry and three reliable ways to improve your margins.

The two margins that matter

• Gross profit margin — what is left after subtracting the cost of the product itself. Tells you whether a product is profitable on its own.
• Net profit margin — what is left after all costs and operating expenses. Tells you whether the business is profitable overall.

The formula

Margin = (Profit ÷ Selling price) × 100

For gross margin, profit is selling price − cost of goods. For net margin, profit is the company-wide number after operating expenses.

Worked examples

Example 1 — a phone case

• Selling price: £15.00
• Cost from supplier: £5.00
• Gross profit: £10.00
• Gross margin: (10 ÷ 15) × 100 = 66.7%

Example 2 — a laptop stand

• Selling price: £120.00
• Cost from supplier: £85.00
• Gross profit: £35.00
• Gross margin: (35 ÷ 120) × 100 = 29.2%

Both products are profitable. The phone case is a much better margin product even though the absolute profit is smaller — which tells you to push volume on cases and treat the laptop stand as a hero product or upsell.

Example 3 — net margin for the business

• Revenue: £4,280
• Cost of goods sold: £1,820
• Operating expenses: £820
• Net profit: £1,640
• Net margin: (1,640 ÷ 4,280) × 100 = ~38.3%

Markup vs margin (the trap)

Markup and margin are not the same thing, and confusing them will silently underprice your products. Markup is calculated from cost; margin is calculated from price.

• 50% markup on a £10 cost item = £15 selling price → margin is 33%, not 50%.
• To get a 50% margin on a £10 cost, you need to sell at £20 — that is 100% markup.

Healthy margin ranges by industry

• Retail / physical products: 20–40% gross, 5–15% net is common.
• Wholesale / distribution: 10–25% gross, tighter on net.
• Services: 50–80% gross, 15–30% net.
• Food and drink retail: 20–30% gross is typical, often lower on net.
• Software / digital: 70%+ gross, very wide net range.

These are anchors, not targets. Your number will depend on scale, location and brand. The honest test is whether your margin is trending up or down over time.

Three reliable ways to improve margin

1. Raise prices

The fastest, most underused lever. Most growing businesses underprice because they fear losing customers. They lose far more money to thin margins than they would to a 5–10% drop in volume after a careful price rise. Test it on one product at a time and watch the data — Tallyn shows you exactly what changed in your sales after a price update.

2. Cut cost of goods

• Negotiate with current suppliers (loyalty deserves a discount).
• Buy in larger batches when cashflow allows.
• Compare two or three suppliers per quarter.
• Cut packaging, returns and damages — they all live inside COGS in real life.

3. Cut operating expenses

• Audit subscriptions every three months.
• Consolidate tools — one app that does sales, stock and debts beats three apps that each do one.
• Renegotiate transport with volume.

How to track margin without doing the maths every time

Set the cost of each product once, and any modern sales tracker will calculate margin for you on every sale. Tallyn does this automatically — when you record a sale, you instantly see margin for that sale and the rolling margin for that product. No spreadsheet required.

In short

Margin is the most actionable number in your business. Pick the formula (Profit ÷ Price × 100), avoid the markup-vs-margin trap, compare to industry norms but only seriously to your own history, and use the three levers — price, COGS, opex — to nudge it up. The growing businesses that watch margin consistently end up with much more cash than the ones who only watch revenue.

Related: revenue vs profit, inventory management.

Frequently asked questions