How to calculate profit margin (with real examples)

“Profit margin” gets thrown around loosely. Getting it right is the difference between a business that makes money and one that just looks busy. Here’s the plain version.

Margin vs markup (they’re not the same)

This trips everyone up.

• Markup is profit as a percentage of your cost.
• Margin is profit as a percentage of your selling price.

Example: you buy something for £10 and sell it for £15.

• Markup = £5 profit ÷ £10 cost = 50%
• Margin = £5 profit ÷ £15 price = 33%

Same £5 profit, two very different-looking percentages. When someone says “I work on 50%”, ask which they mean.

Gross margin vs net margin

• Gross margin = (Revenue − cost of goods) ÷ Revenue. It ignores overheads.
• Net margin = (Revenue − all costs, including overheads, fees, tax) ÷ Revenue. This is what actually lands in your pocket.

A healthy gross margin can still become a thin net margin once fees, software, shipping and your time are counted. Always know both.

A worked example

You sell a product for £40. It costs you £16 to make. Platform and payment fees are £4.

• Gross profit = £40 − £16 = £24 → gross margin = 24 ÷ 40 = 60%
• After fees = £24 − £4 = £20 → margin = 20 ÷ 40 = 50%

Now subtract a slice for your overheads and time, and you see your real number.

Stop doing this in your head

Margins are simple maths, but doing it per product, per sale, after fees, at scale is exactly where errors and wishful thinking creep in.

Sedonis tracks cost, fees and price on everything you sell and shows your real profit and margin automatically — so pricing decisions are based on facts, not vibes. Free to start.

Pricing something new? See how to price a product and how to price freelance work.

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General guidance for planning purposes.