Definitions
- Gross profit: price minus direct production costs (materials, waste, labour, packaging).
- Net profit: what's left after fees and overheads as well.
- Margin: profit as a share of the selling price.
- Markup: profit as a share of your costs.
Worked example
An item sells for £20.00. Direct costs are £10.00, overheads £2.00, and selling fees £2.00 (10%, an example figure).
Gross profit = £20 − £10 = £10 → gross margin 50%
Net profit = £20 − £10 − £2 − £2 = £6 → net margin 30%
Markup on total costs = £6 ÷ £14 = 42.9%
Which should you use?
Net margin tells you what you actually keep. Gross margin is handy for comparing products. CraftMargin shows profit after fees and all the costs you enter, which works like net margin before tax.
None of these figures include VAT or income tax. How those apply depends on your situation.
Try it with your own numbers in the free CraftMargin calculator. It works without an account.