How gross margin works
Gross margin shows the share of selling price left after the direct cost of the item or service. It is one of the clearest ways to compare the economics of different products.
Formula
Gross margin % = (selling price − cost) ÷ selling price × 100.
Example
An item costing £40 and selling for £70 makes £30 gross profit. Its gross margin is 42.9%, while its markup is 75%.
Common mistakes to avoid
- Using margin and markup interchangeably.
- Calling gross profit net profit before overheads and tax have been deducted.
- Ignoring discounts, refunds or transaction costs when assessing real-world profitability.
ProfitMaths provides general calculation tools and educational information. Results are estimates and are not accounting, tax, legal or financial advice.