Quick answer
Profit margin is calculated by subtracting cost from selling price, then dividing by selling price.
How it works
- Define the commercial question clearly.
- Calculate the number using a simple framework.
- Check the result against cost, margin, timing, or market reality.
- Use a tool to test decisions before acting.
Common questions
What does this mean in practice?
This page is designed to turn a business concept into a simple decision-making framework for UK SME owners.
Margin is one of the most misunderstood numbers in small business.
This guide explains the formula, the difference between margin and markup, and how to use margin properly when making commercial decisions.
What profit margin means
Profit margin shows how much of each sale is left after cost. It is a far better health signal than revenue on its own because it shows the quality of your sales, not just the volume.
Margin vs markup
Many owners use these terms interchangeably, but they are different. Markup is added onto cost. Margin is measured against selling price.
The formula
Common mistakes
- Ignoring delivery and landed cost
- Forgetting merchant fees
- Treating VAT as margin
- Using markup when you mean margin
How to improve margin
Margin improves through better pricing, better supplier terms, better product mix, and tighter cost awareness.