Benchmarks current as at October 2026, using ATO small business benchmark data for the 2023-24 financial year (updated 16 March 2026). Next review: after the ATO’s 2027 benchmark update.
Most business owners judge a good year by revenue. The owners who build valuable businesses watch a different number: gross profit margin, the share of every sales dollar left after paying for the product or service you delivered. It sits at the top of your business model, and small changes there flow through to the bottom line in a way that extra sales rarely do.
The “$100M” label comes from Alex Hormozi’s $100M book series, which values a customer by the gross profit they generate rather than the revenue they bring in. This guide applies that lens to Australian numbers: how to calculate your margin, how the four leverage points in your business model compare, and where your margin sits nationally.
Most articles say a “good” margin depends on your industry and stop there. We’ve converted the ATO’s 2023-24 small business benchmarks into gross margin ranges for six common Australian industries, so you can compare your business with real tax return data rather than a rule of thumb.
What Is Gross Profit Margin?
Gross profit margin measures how much of each dollar of revenue is left after you pay the direct costs of making or delivering what you sell. Those direct costs are your cost of sales (also called cost of goods sold, or COGS): stock, materials, freight in, subcontractors and, depending on how your accounts are set up, the wages of the people doing the work.
What’s left is gross profit. It has to cover everything else in the business: rent, admin wages, software, insurance, marketing, interest and, finally, your profit.
The gross profit margin formula
Business Queensland’s guide to measuring business profitability sets out the standard calculation:
Gross profit margin (%) = (Revenue minus cost of sales) ÷ Revenue × 100
A business with $2,000,000 in sales and $1,200,000 in cost of sales has $800,000 of gross profit and a gross profit margin of 40%.
Two Australian details matter here. First, if you’re registered for GST, use GST-exclusive figures for both sales and costs, otherwise you’re measuring the ATO’s money as well as your own. Second, be consistent about labour. Some businesses put direct wages in cost of sales and some don’t, and in trades or hospitality that choice can move your margin by 20 percentage points or more. Neither approach is wrong. Comparing a with-labour margin against a without-labour benchmark is.
Margin is not markup
Markup is profit as a percentage of cost. Margin is profit as a percentage of the selling price. A product that costs $100 and sells for $150 carries a 50% markup but only a 33.3% margin. To earn a 40% margin, you need a markup of 66.7%. Quoting on markup while budgeting on margin is one of the quietest ways a business ends up underpriced.
Gross margin vs net margin
Gross margin tells you whether your offer makes money. Net margin tells you whether your business does, once overheads are paid. A healthy gross margin can still produce a thin net result if overheads are heavy, but a weak gross margin rarely produces a strong one.
The $100M Framework: Four Leverage Points in Your Business Model
Every business model has four basic levers on profit: what you charge (price), what it costs to deliver (direct costs), how much you sell (volume) and what it costs to run the business (overheads). They don’t carry equal weight.
Take an illustrative trades business turning over $2,000,000, with a 40% gross margin and $600,000 of overheads. It makes a net profit of $200,000. Here’s what a 5% improvement in each lever does, with everything else held steady.
| Lever (5% improvement) | Gross margin | Net profit | Change in net profit |
|---|---|---|---|
| Starting point | 40.0% | $200,000 | Not applicable |
| Price up 5% | 42.9% | $300,000 | +50% |
| Direct costs down 5% | 43.0% | $260,000 | +30% |
| Volume up 5% | 40.0% | $240,000 | +20% |
| Overheads down 5% | 40.0% | $230,000 | +15% |
Illustrative figures only. They are not based on any client, and assume each change is made on its own.
The two biggest levers both work through gross profit margin. A price rise costs nothing extra to deliver, so every additional dollar drops straight to profit, and a cut in direct costs does the same on every sale you already make. Volume comes third, and in practice it’s weaker than the table shows, because more sales need more marketing, capacity and cash tied up in stock and debtors. Overheads come last, and they have a floor.
That’s the core of the $100M lens. Revenue growth is the lever most owners pull first, but margin decides whether that growth is worth having.
Why discounting costs more than you think
At a 40% margin, a 5% discount means you need 14.3% more sales volume just to earn the same gross profit. The same maths applies to a slow margin slide. If the business above lets its margin drift from 40% to 35%, it needs about $286,000 (14.3%) more revenue to stand still.
How much volume you can afford to lose on a price rise
It works the other way too. At a 40% margin, a 5% price rise lets you lose up to 11.1% of your sales volume before gross profit falls. That’s a bigger buffer than most owners expect, and it’s why price is usually the first lever worth testing carefully. Our guide to pricing strategy for small businesses covers how to do it without damaging customer relationships.
What Is a Good Gross Profit Margin? Australian Benchmarks From ATO Data
A good gross profit margin is one that’s in line with, or better than, businesses like yours, and improving over time. The most credible national comparison available to Australian small businesses is the ATO’s own data.
The ATO publishes small business benchmarks for 100 industries, built from tax return data. The current figures cover the 2023-24 financial year and were updated on 16 March 2026. Each benchmark is shown as a range for three turnover bands. The ATO’s benchmarking methodology describes each range as 30% of the population around the industry average, and it excludes businesses turning over less than $30,000 or more than $15,000,000.
The ATO doesn’t publish gross margin directly. It publishes cost of sales as a percentage of turnover, so we’ve converted it: gross margin before labour is 100% minus that ratio. The table uses the highest turnover band for each industry, which is where most growth-focused businesses sit.
| Industry | Turnover band | ATO cost of sales to turnover | Implied gross margin before labour |
|---|---|---|---|
| Restaurants | More than $2,000,000 | 31% to 36% | 64% to 69% |
| Coffee shops | More than $600,000 | 33% to 38% | 62% to 67% |
| Clothing retailing | More than $500,000 | 48% to 57% | 43% to 52% |
| Electrical services | More than $500,000 | 30% to 41% | 59% to 70% |
| Plumbing services | More than $600,000 | 29% to 38% | 62% to 71% |
| Hairdressers | More than $300,000 | 12% to 16% | 84% to 88% |
Source: ATO small business benchmarks, 2023-24 financial year, updated 16 March 2026. Implied margin calculated as 100% minus the ATO cost of sales ratio.
Read the benchmarks properly: the ATO excludes labour
This is the detail most people miss. The ATO’s guide to comparing your business performance manually defines cost of sales as the cost of anything produced, manufactured, acquired or purchased, and states that it excludes labour. The margins in the table are before wages.
That gap matters most in labour-heavy industries. For restaurants turning over more than $2,000,000, the ATO’s separate labour benchmark runs at 27% to 34% of turnover. For electricians over $500,000, it’s 23% to 34%. If your management accounts include direct wages in cost of sales, your gross margin will sit well below the table, and that’s expected. Take labour out to compare with the ATO, then put it back to run the business.
Growth doesn’t automatically lift your margin
The ATO data holds a warning for anyone planning to scale. Electricians turning over $50,000 to $200,000 report cost of sales of 22% to 34% of turnover. Once turnover passes $500,000, that rises to 30% to 41%. Larger, more materials-heavy jobs are the likely reason, but whatever the cause, the lesson holds: margin can shrink quietly as revenue climbs unless you track it. If you run a trades business, our building and construction accountants can help you price jobs with that in mind.
Service businesses play by different rules
Businesses with little stock, such as hairdressers at 84% to 88% before labour, look extremely profitable on this measure because almost all of their direct cost is people. Business Queensland suggests professional services firms often run gross margins of 80% or higher, against roughly 45% to 60% for manufacturing and construction. For a service business, the real margin question is utilisation: how many of the hours you pay for are hours a client pays for.
How to Find the Leverage Points in Your Own Business Model
- Calculate margin by product, service line or job. A healthy average often hides one line that loses money on every sale. In Xero, tracking categories make this a report setting rather than a spreadsheet exercise.
- Decide where direct labour sits, then keep it there. Moving wages in and out of cost of sales makes your margin trend meaningless.
- Benchmark twice. Compare against the ATO range for your industry (with labour removed) and against your own last 12 months, reading your profit and loss statement in percentages, not just dollars.
- Run the 5% test on your own numbers. Model each lever separately and rank them by their effect on net profit. Your order may differ from the example above.
- Pull the biggest lever first. For most businesses that’s price, then direct costs. Our guide to finding profit leaks in your business covers the cost side.
- Report it every month. Margin by line belongs in your management reporting, so a slide is caught in weeks rather than at tax time.
This is the work our business growth accountants do with owners: identifying which levers matter in your model, then tracking them through regular strategy sessions and KPI reporting.
Frequently Asked Questions
How do you calculate gross profit margin?
Subtract cost of sales from revenue, divide the result by revenue, then multiply by 100. A business with $500,000 in sales and $300,000 in cost of sales has a gross profit margin of 40%. If you’re registered for GST, use GST-exclusive figures for both.
What is a good gross profit margin in Australia?
It depends on your industry. ATO data for 2023-24 implies margins before labour of 43% to 52% for clothing retailers turning over more than $500,000, and 84% to 88% for hairdressers over $300,000. A good margin is one at or above your industry range that holds steady or improves over time.
Does gross profit margin include labour?
It depends on how your accounts are set up. Many businesses include direct wages in cost of sales for management reporting, which gives a more realistic margin. The ATO’s benchmark cost of sales excludes labour, so remove wages before comparing your figure with ATO data.
What’s the difference between gross profit margin and markup?
Markup is gross profit as a percentage of cost, while margin is gross profit as a percentage of the selling price. A 50% markup equals a 33.3% margin. Confusing the two is a common cause of underpricing.
Is a higher gross profit margin always better?
Usually, but not at any cost. A margin bought by cutting quality can lose you customers, and a margin far above your industry range can mean direct costs have been coded to the wrong accounts.
Final Thoughts: Start With Margin, Then Grow
Revenue is the number people ask about. Gross profit margin is the number that decides what that revenue is worth. Price and direct costs act on it directly, which makes them the strongest leverage points in almost any business model.
If you’d like help working out which levers matter most in your business, New Wave’s business coaching and business growth accounting teams can model your numbers with you. Book a call with our team to get started.
This article is general information only and does not take your personal circumstances into account. It is not tax, financial or accounting advice. ATO benchmark figures are current as at October 2026. Speak with a qualified adviser before acting on anything in this article.
