Use case
Profit Margin Example for UK Small Business
A simple worked example for a UK small business selling a single product. Shows the margin, the markup and why mixing them costs you money.
The scenario
James runs a small kitchenware shop and online store. One product — a ceramic mug set — has these numbers:
- Cost (wholesale + packaging): £18
- Selling price: £45
The maths
Profit per unit = Price − Cost
Profit per unit = £45 − £18 = £27
Margin % = Profit ÷ Price × 100 = 60.0%
Markup % = Profit ÷ Cost × 100 = 150.0%
James earns £27 of gross profit per mug set. As a percentage of price that's 60.0% margin. As a percentage of cost it's 150.0% markup. Same product, two different percentages.
Margin vs markup at a glance
| Metric | Formula | Result |
|---|---|---|
| Margin | Profit ÷ Price | 60.0% |
| Markup | Profit ÷ Cost | 150.0% |
Why margin matters more
Margin tells you how much of every £ of revenue actually belongs to the business. James knows that 60% of every sale is his to cover overheads, marketing, his salary and tax. If he ever quotes "margin" but means "markup", he'll under-price every product.
What's a healthy margin?
Rough UK benchmarks (gross margin):
- Retail / ecommerce: 30–50%
- Hospitality: 60–70% on drinks, 30–40% on food
- Consulting / services: 50–70%
- Manufacturing: 20–40%
Beat your sector benchmark and you have room to invest in marketing or staff. Fall below it and price increases or cost cuts become urgent.
Apply this to your products
Use the Profit Margin Calculator to plug in your own cost and price. Pair it with the Break-even Calculator to find the unit volume needed to cover overheads.
For the theory, read Markup vs Margin Explained, How to Calculate Profit Margin, and How to Calculate Pricing for a Small Business.
Frequently asked questions
What's a good profit margin for a UK small business?
It depends on the industry. Retail and ecommerce typically aim for 30–50% gross margin, services and consulting often achieve 50–70%, and food and hospitality sit closer to 10–20%. Compare yourself to your sector, not a generic benchmark.Is gross margin the same as profit margin?
Not quite. Gross margin only accounts for direct cost (product or delivery cost). Net profit margin accounts for all costs including overheads, salaries and tax. Most small businesses focus on gross margin first.How do I improve my margin without raising prices?
Negotiate supplier costs, cut packaging weight, reduce shipping options, consolidate apps and subscriptions, and drop your lowest-margin SKUs. Small reductions in variable cost compound across every unit.Why is margin different from markup?
Markup is profit as a percentage of cost. Margin is profit as a percentage of selling price. The same product can have a 50% markup but only a 33% margin. Read the full guide to avoid confusing them.