Calculate your business's gross profit, net profit and profit margin from revenue, cost of goods sold and operating expenses. Understand whether your business model is generating sustainable profit — and by how much.
Enter total revenue (all sales income), cost of goods sold (COGS — the direct cost of producing your product or service), and operating expenses (rent, salaries, marketing, software and other indirect costs).
Gross Profit = Revenue − Cost of Goods Sold
Net Profit = Gross Profit − Operating Expenses
Gross Margin = (Gross Profit ÷ Revenue) × 100%
Net Margin = (Net Profit ÷ Revenue) × 100%
A healthy gross margin for product businesses is typically 40–60%. Service businesses often operate at 60–80% gross margin. Net margins vary widely by sector and business model.
Revenue £50,000, COGS £20,000, expenses £12,000 → gross profit £30,000 (60% gross margin), net profit £18,000 (36% net margin), total costs £32,000.
Profit and revenue are not the same thing — a business can have high revenue and low or negative profit. The business profit calculator separates these three layers: revenue (the total money coming in), gross profit (revenue minus the direct cost of delivering that revenue), and net profit (what remains after all costs are paid). Understanding all three, and the margin percentages, is essential for sound business decision-making.
Gross margin is particularly important when evaluating pricing or product mix. If you sell three products with different gross margins, the business should direct resources toward the highest-margin products — but only gross margin analysis makes this visible. Net margin reflects the whole business, including fixed overheads that do not change with volume.
Use realistic figures rather than aspirational ones. COGS should include every directly attributable cost: raw materials, direct labour, packaging, shipping to customer, and any third-party services that are consumed per unit sold. Operating expenses should include everything else that the business incurs regularly, even if not tied to a specific sale.
Run two scenarios: one with current figures, one with a 10% increase in revenue but the same fixed expenses. The second scenario reveals how much of the additional revenue drops to net profit — in businesses with high fixed costs and low variable costs, the incremental net margin can be very high, which is the rationale for growth-focused strategies.
If your business is operating at a negative net margin (a loss), it is important to understand why before taking action. If the gross margin is positive but net margin is negative, you may be able to become profitable by cutting fixed expenses or increasing revenue. If gross margin is negative, the fundamental product economics need to change — raising prices, reducing production costs, or changing the product mix.
For accounting, tax planning and business structuring advice, a qualified accountant registered with ICAEW, ACCA or CIMA is the appropriate professional. Many accountants offer a free initial consultation.
Common questions about this calculator and how to use it.