What does this
sale really make?
Work out your margin from a cost and a price, or the price that earns the margin you want, with the markup beside it.
20%
£20.00 profit on a £100.00 price. The same profit is a 25% markup.
What the item or job costs you, before VAT.
What you charge, before VAT.
Profit
£20.00
Markup
25%
- Cost
- £80.00
- Selling price
- £100.00
- Profit
- £20.00
- Profit margin
- 20%
- Markup
- 25%
- Price with 20% VAT, if you charge it
- £120.00
Work on prices before VAT. VAT you charge is not your income and VAT you can reclaim is not a cost, so including either makes the margin look wrong.
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<p style="font-size:12px">
<a href="https://taptax.co.uk/tax-calculator/profit-margin">Profit margin calculator by TapTax</a>
</p>- Profit margin
- Profit as a percentage of the selling price. A 20% margin means 20p of every pound the customer pays is profit.
How to work out profit margin
Take the cost away from the selling price to get the profit, then divide the profit by the selling price. Something that costs £80 and sells for £100 makes £20 of profit: a 20% margin. To find the price for a margin you want, divide the cost by one minus the margin: £80 for a 20% margin is £80 ÷ 0.8 = £100.
Margin is not markup
Markup measures the same profit against the cost instead of the price, so it is always the bigger number. Adding 20% to your cost gives a margin of only 16.7%. This table shows the markup each margin needs:
| Margin | Markup needed | Price on £100 of cost |
|---|---|---|
| 10% | 11.1% | £111.11 |
| 20% | 25% | £125.00 |
| 25% | 33.3% | £133.33 |
| 30% | 42.9% | £142.86 |
| 40% | 66.7% | £166.67 |
| 50% | 100% | £200.00 |
Gross margin and net margin
The margin on one sale, with only the direct cost taken off, is the gross margin. Your overheads, such as insurance, software, phone and van costs, come out of that gross profit, and what is left over the year is your net profit: the figure you pay income tax and National Insurance on. A job needs a gross margin big enough to cover its share of overheads before it makes you anything.
The sole trader tax calculator shows what a year of net profit leaves you after tax.
- Profit margin is profit divided by the selling price.
- Price for a target margin: cost divided by (1 minus the margin).
- The same profit is always a bigger markup than margin.
- Work margins on prices before VAT.
Related calculators
Frequently asked questions
How do I calculate profit margin?
Take the cost away from the selling price to get the profit, then divide the profit by the selling price and multiply by 100. A £100 sale that cost £80 has a 20% margin.
How do I find a selling price from a margin?
Divide the cost by one minus the margin as a decimal. For a 30% margin on a £70 cost, divide £70 by 0.7 to get a £100 price.
What is the difference between margin and markup?
Margin is profit as a share of the selling price; markup is profit as a share of the cost. The same £20 profit on an £80 cost is a 20% margin and a 25% markup.
Can a profit margin be over 100%?
No. Profit can never be more than the whole price, so a margin always stays below 100%. A markup can be any size.
Should I include VAT when working out margin?
No. Use prices before VAT. VAT you charge belongs to HMRC and VAT you can reclaim is not a cost, so either one distorts the margin.
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