Gross Margin Calculator
You keep 58.0% of revenue after cost of goods: $29,000 gross profit.
What is Gross margin?
Gross profit margin is the share of revenue left after the direct cost of producing what you sell, calculated as (revenue minus cost of goods sold) divided by revenue, times 100.
At a 58% margin, 58 cents of every 1 in revenue remains to cover overhead, marketing and profit. The rest went straight to the cost of goods (COGS).
It is the ceiling on every margin below it. Operating and net margin can only be smaller, so a thin gross margin limits how much you can spend on everything else and still profit.
How to calculate Gross margin
Gross margin = (Revenue − COGS) ÷ Revenue × 100
- Total your revenue. Sales over the period you are measuring. The example uses 50,000.
- Total your cost of goods. The direct cost of producing or buying what you sold, 21,000 in the example. Exclude overhead and marketing.
- Subtract to get gross profit. 50,000 minus 21,000 is 29,000 of gross profit.
- Divide by revenue and multiply by 100. 29,000 divided by 50,000, times 100, is a 58% gross margin.
Worked example
A business takes 50,000 in revenue against 21,000 in cost of goods sold.
| Revenue | $50,000 |
|---|---|
| Cost of goods sold | $21,000 |
| Result | 58.0% gross margin |
You keep 58 cents of every 1 in revenue after the cost of goods: 29,000 of gross profit. Expressed the other way, that is a 138% markup on cost.
How to improve Gross margin
- Raise prices where you have room, since price flows almost entirely into margin.
- Lower input costs by renegotiating with suppliers or buying at better volumes.
- Shift the mix toward higher-margin products and tiers.
- Cut waste and improve production efficiency to reduce the cost per unit sold.
What drives gross margin
Gross margin varies enormously by industry, so there is no single good number. Software and digital products tend to run high margins because each extra sale costs almost nothing to deliver; retail, manufacturing and resale run lower because each unit carries a real cost of goods.
What moves your own margin is the gap between price and direct cost: pricing power, input and supplier costs, production efficiency, and your product mix. Judge margin against your own trend and close competitors, not a universal threshold.
Frequently asked questions
- What is gross profit margin?
- Gross profit margin is the share of revenue left after the direct cost of producing what you sell (cost of goods sold). At a 60% margin, 60 cents of every 1 in revenue is left to cover overhead, marketing and profit. It sets the ceiling on every margin below it.
- How do you calculate gross profit margin?
- Subtract cost of goods sold from revenue to get gross profit, then divide by revenue and multiply by 100: (revenue − COGS) ÷ revenue × 100. So 50,000 in revenue and 21,000 in cost of goods is 29,000 gross profit and a 58% margin.
- What is the difference between margin and markup?
- Both compare the same gross profit to a different base. Margin divides it by revenue (the selling price); markup divides it by cost. An item costing 21,000 and sold for 50,000 is a 58% margin but a 138% markup. Margin can never exceed 100%; markup can.
- What is the difference between gross and net profit margin?
- Gross margin counts only the direct cost of goods, so it measures how profitable the product is. Net margin is what is left after every other cost too: operating expenses, marketing, interest and tax. Gross margin is always the higher of the two and caps the net.
- What is a good gross profit margin?
- It varies widely by industry, so treat any benchmark as a convention, not a rule. Software often runs high margins because each extra sale costs little, while retail and manufacturing run lower. Judge it against your own trend and your competitors, not a universal threshold.