2 min read
How they differ
Gross profit is revenue minus the cost of goods sold — materials, direct labour and anything that scales with each sale. As a percentage it is your gross margin. Net profit then subtracts overheads, interest and tax; as a percentage it is your net margin. A strong gross margin can still produce a thin net margin if overheads are heavy.
What this means for your company
Watch both. A falling gross margin points to pricing or supplier-cost problems; a falling net margin with a stable gross margin points to bloated overheads. Directors who track margins monthly in their management accounts catch drift early. If you borrow to grow, the return has to beat the cost — model it with the return-on-borrowing calculator.
What it means for you
Credicorp lends to your company, not to you personally, and takes no personal guarantee. See business loans or apply online.
Frequently asked questions
What is a good gross margin?
It varies hugely by sector — services can run 60–80%, while distribution or food retail may be 20–30%. Compare against your own trend and sector peers rather than a universal number.
Can a business have a high gross margin but lose money?
Yes. If overheads, wages or interest are larger than gross profit, the company makes a net loss despite healthy per-sale margins. That is why net margin matters.
Related reading
What is a good profit margin for a small business?
A good margin varies widely by sector, so compare against your industry rather than a single number — and…
Read →
What Are Management Accounts, and Why Do They Matter to Directors and Lenders?
Management accounts are periodic internal financial statements — typically monthly or quarterly — that give…
Read →
What is a good reason to take a business loan?
Good reasons bridge timing or fund a return that beats the cost — a tax bill, a big order, equipment,…
Read →What is a guarantor and how is it different from a personal guarantee?
A guarantor is a third party who promises to repay if the borrower can't; a personal guarantee is that…
Read →Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.