How to Increase Your Manufacturing Profit Margin — 6 Easy Steps

As a small manufacturing business, keeping a close eye on your profit margin isn’t optional — it’s how you find out whether you’re actually building something sustainable or just staying busy.

Several factors push your margin up or down: the cost of raw materials, your overhead expenses, the price you charge, and how long each product takes to make. Most makers track one or two of these. The ones who thrive track all of them.

This guide walks through how to calculate your manufacturing profit margin, explains the difference between gross margin, net margin, and EBITDA, and works through real examples for candle, soap, and jewelry businesses so you can see what healthy numbers look like in practice.

What is a profit margin?

Your profit margin shows how much revenue you keep after covering the cost to make your product.

It’s expressed as a percentage, which makes it useful for comparing across your entire product range — not just in dollar terms. And that matters more than most makers realise.

Here’s a simple example. If you make $11 from Product A and $5 from Product B, Product A looks like the winner. But if Product A has a 22% margin and Product B has a 45% margin, the picture changes completely. Product A brings in more cash per sale, but Product B is far more efficient. That’s exactly what the margin calculation is designed to reveal.

The formula:

(Price - Cost) ÷ Price = Profit Margin

Step by step:

1. Start with your selling price
2. Subtract your base manufacture cost — everything it costs you to produce the item
3. Divide the result by the selling price
4. Multiply by 100 to get a percentage

You can apply the same formula to your whole business:

(Total Revenue - Total Expenses) ÷ Total Revenue = Overall Profit Margin

Gross Margin vs. Net Margin vs. EBITDA

This is where a lot of makers get confused — and the confusion is understandable, because all three terms measure “profit” but they measure different things.

Gross profit margin

Gross margin counts only your direct costs: raw materials and, in some calculations, direct labor to make the product. Overhead doesn’t come into it.

It’s useful for comparing the efficiency of individual products in isolation — before rent, insurance, and other business costs get factored in. A product with a high gross margin gives you room to cover your overheads and still come out ahead.

Net profit margin

Net margin is the complete picture. It includes everything: materials, direct labor, overhead (rent, utilities, equipment), packaging, shipping supplies, marketplace fees, and taxes.

For most small manufacturing businesses, net margin is the number that tells you whether you’re actually profitable. It’s also the figure that matters most at tax time.

What about EBITDA?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. You don’t need to worry about it unless you’re borrowing money to fund the business (interest), own significant equipment you’re depreciating over time, or are talking to investors.

For a one-person soap or candle operation, gross margin and net margin cover everything you need. EBITDA becomes relevant when your business gets more complex — equipment loans, multiple employees, business premises. Worth knowing the term, but not worth losing sleep over right now.

Worked Examples: Candle, Soap, and Jewelry

Here’s what the numbers look like for three common maker niches. These are realistic figures, not aspirational ones.

Soy candle (200ml, retail $18)

• Gross margin: ($18 − $5.10) ÷ $18 = 71.7%
• Net margin: ($18 − $11.60) ÷ $18 = 35.6%

For more detail on candle-specific pricing, see our guide to how to price candles.

Cold-process soap bar (retail $10)

• Gross margin: ($10 − $2.70) ÷ $10 = 73.0%
• Net margin: ($10 − $6.50) ÷ $10 = 35.0%

If you want to quickly compare your soap margins at different price points, our soap making cost calculator shows your margin at 2x, 3x, and 4x markup alongside the cost per bar.

Sterling silver pendant (retail $48)

• Gross margin: ($48 − $10.30) ÷ $48 = 78.5%
• Net margin: ($48 − $27.80) ÷ $48 = 42.1%

Notice that all three products show a healthy gross margin (70–80%), but net margins land around 35–42% once labor and overhead are included. This is typical for handmade product businesses. Many makers calculate only their material costs and then wonder why they feel underpaid — it’s because the full picture looks quite different once you include the hours and the business costs.

For real-world benchmarks by niche, see our post on handmade business profit margins by niche.

Margins vs. Markups

One other thing to note: your profit margin is not the same as your markup.

• Markup is the percentage you add on top of cost: (Price − Cost) ÷ Cost
• Margin is the percentage of revenue you keep: (Price − Cost) ÷ Price

A 100% markup gives you a 50% margin. A 50% markup gives you a 33% margin. They measure the same relationship from opposite starting points, which causes endless confusion when comparing notes with other makers online. Pick one and stick with it.

6 Ways to Increase Your Profit Margin

1. Find cheaper raw materials

Shop around for suppliers. Buy in bulk where you know your volumes will hold steady. And if you’re sourcing internationally, always compare using landed cost — not just the sticker price — so that tariffs, freight, and brokerage fees are captured in your comparison. The “cheaper” supplier often isn’t, once you add the true cost of getting materials to your door.

2. Reduce manufacturing costs

Look for waste in your process: materials that get scrapped, steps that take longer than they should, packaging that costs more than it needs to. Standardising your workflow through simple SOPs helps reduce errors and rework. Minimising scrap, storing materials correctly, and labelling everything clearly are small habits that compound over time.

3. Increase your prices

If you’re selling below your true cost — and many makers are — raising prices is the most direct lever available. You don’t need to double overnight. A 10–15% increase on your most squeezed products can shift your profitability noticeably, especially on high-volume items.

Related: Pricing Mistakes (And How To Avoid Them) →

If you want to charge more without losing customers, the guide to premium pricing for handmade products covers how to make the case for higher prices through quality, story, and positioning.

4. Improve your sales and marketing

Selling more units at the same margin improves your overall profit and spreads fixed overhead over more products. Options include better product photography, stronger packaging, and selling direct-to-consumer to cut out marketplace fees. Adding a second sales channel is another path — makers who sell on both Etsy and Shopify typically see stronger overall revenue than single-channel sellers.

5. Control your overhead costs

Fixed costs (rent, insurance) stay constant regardless of production volume. Variable costs (materials, packaging) scale with what you make. Understanding which is which helps you find the right levers.

If rent is fixed, look at whether you’re using your space well. If packaging is variable, renegotiate with suppliers or redesign to reduce waste. Neither change is difficult — but they require you to be looking at the numbers in the first place.

6. Use manufacturing software

Tracking margins in spreadsheets works when you have a handful of products. It breaks down quickly as your range grows — especially when material prices change and you need to recalculate costs across dozens of recipes.

Craftybase is manufacturing software built for small makers. It tracks material costs and labor per recipe, calculates margins automatically as input costs change, and shows you which products are your most and least profitable. Try it free for 14 days.

Frequently Asked Questions