Gross margin, net margin and markup from your own figures. Margin and markup are not the same number, and mixing them up is how businesses accidentally price below cost.
Sales excluding VAT.
Materials, direct labour, subcontractors.
Overheads, admin salaries, rent, marketing.
Margin, not markup. The difference is below.
Applying your target as a markup rather than a margin is the commonest pricing error. Here is what it costs on each unit.
| Method | Price | Actual margin | Profit per unit |
|---|
Profit as a share of the selling price.
Profit as a share of the cost. Edit either box.
Margin = markup ÷ (1 + markup). Markup = margin ÷ (1 − margin).
| Margin | Equivalent markup | Price on a £100 cost |
|---|
A healthy margin and an empty account is the most common shape of business failure. Profit is recorded when you invoice; cash turns up when your customer decides. Invoice finance releases up to 90% of an invoice within 24 hours of raising it.
See what your ledger could releaseMargin measures profit against the selling price. Markup measures the same profit against the cost. A product costing £60 and sold at £100 carries a 40% margin and a 66.7% markup. Same £40, two different percentages, because they are divided by different numbers.
The damage happens when somebody is told to hit 30% and applies it as a markup. Cost £70, add 30%, price £91 - that is a 23% margin, not 30%. Across a year on thin-margin work, that gap is often the whole profit. Markup is always the bigger number, so if the two figures in front of you are the same, one of them is wrong.
Gross margin is revenue minus the direct cost of delivering the work. It tells you whether the thing you sell makes money. Operating margin takes off overheads and tells you whether the business makes money. Net margin also takes off interest and tax, and is what actually belongs to you.
A falling gross margin with steady sales usually means input costs rose and you did not pass them on, or your mix has shifted towards low-margin work. Those need different responses, so look at margin by product or by customer before you act - a blended figure hides the line that is losing money.
It depends entirely on the sector and on how fast you turn stock over. A wholesaler running 8% gross margin on high volume can be far more profitable than a consultancy on 60%. Compare yourself against your own trend and against your sector, never against a number from the internet.
