Understanding Profit Margin

What Gross Margin Is

Gross margin is the percentage of the selling price that remains as profit after deducting the cost of goods. It is the most widely used measure of product profitability.

Formula:

Gross Margin % = (Selling Price - Cost) / Selling Price x 100

Gross margin is always expressed as a percentage of the selling price — not the cost. This is the important distinction between margin and markup (see the Understanding Markup article for that comparison).

Examples

Cost	Selling Price	Gross Profit	Gross Margin %
€10.00	€15.00	€5.00	33.3%
€10.00	€20.00	€10.00	50.0%
€10.00	€25.00	€15.00	60.0%
€12.00	€28.00	€16.00	57.1%

Working Backwards from a Target Margin

Once you know your cost and the margin you need to achieve, you can calculate the required selling price:

Selling Price = Cost / (1 - Target Margin %)

Examples:

Cost	Target Margin	Required Selling Price
€12.00	40%	€12.00 / 0.60 = €20.00
€12.00	50%	€12.00 / 0.50 = €24.00
€12.00	60%	€12.00 / 0.40 = €30.00
€18.50	45%	€18.50 / 0.55 = €33.64

CrafterBy can calculate this automatically — enter your target margin in the pricing calculator and it derives the required selling price from your product cost.

Target Margins for Craft Businesses

There is no universal right answer, but these benchmarks apply to most craft businesses:

Margin Range	Interpretation
Below 30%	Leaving too little to cover overhead, absorb cost increases, and fund growth. Review costs and pricing.
30–40%	Acceptable for high-volume, low-complexity products with low overhead. Tight but sustainable.
40–60%	The healthy range for most craft businesses. Covers overhead and provides a buffer for cost changes.
Above 60%	Achievable for luxury, highly differentiated, or custom products with strong brand positioning.

Gross Margin vs Net Margin

Gross margin only accounts for the direct cost of goods (materials, labour, machines, overhead allocation). It does not include selling expenses, platform fees, or non-production costs. Your net margin is lower than your gross margin once those are deducted.

For example: a product with 48% gross margin sold on a platform that takes a 15% commission and 3% payment processing fee has a net margin of approximately 30%. Always check whether your target gross margin is sufficient to cover your selling costs and still leave you with a satisfactory net return.

Using CrafterBy's Pricing Calculator