Gross margin vs net margin

Lesson 4 of 13 in our free Business Money Basics guide: a 5-minute money game with the key points below.

This lesson is in the full version.

Free with a code from your uni, college, council, landlord or employer (worth £600/year). Lesson 1 of Business Money Basics is free for everyone.

Questions you'll answer

Illustration: sales £10,000, cost of sales £4,000. What's the gross margin?

Same business: overheads are £4,500 on top. What's the NET margin?

Fact: “Two businesses with the same profit can have very different margins.” — £2,000 profit on £20,000 sales is 10%; on £200,000 sales it's 1%.
Fact: “A business with a 1% net margin has very little room for mistakes.” — A small rise in costs or a dip in prices wipes the profit out.
Myth: “Net margin is always higher than gross margin.” — It's always lower or equal: net margin has had the overheads taken off too.