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Gross Margin Percentage Calculator

Measure your gross profitability

How it is calculated

Gross profit is profit = revenue − COGS and gross margin is margin = profit / revenue × 100. Revenue is your net sales for the period and COGS (cost of goods sold) is the direct cost of what you sold. Both go in as amounts in the same currency and the same period; the margin comes out as a percentage and the profit as a dollar-formatted amount.

Revenue must be greater than zero and COGS cannot be negative, otherwise there is no result. COGS above revenue is allowed and produces a negative margin, for example 1,000 of revenue against 1,200 of cost gives −20.00%. Gross margin is a share of revenue, which is different from markup, a share of cost. The tool does not include operating expenses, tax or interest.

Worked example

Revenue of 250,000 and COGS of 150,000. Gross profit: 250,000 − 150,000 = $100,000.00. Divide by revenue: 100,000 / 250,000 = 0.40, and multiplied by 100 the margin is 40.00%. Of every unit of sales, 40% is left to cover operating expenses and profit.

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Common mistakes

  • Mixing up margin and markup. A product bought for 60 and sold for 100 has a 40% margin but a 66.7% markup; this tool gives the margin only.
  • Putting gross profit in the COGS box, or entering revenue including sales tax. Use net sales and the direct costs only.
  • Including operating expenses such as rent, advertising or salaries in COGS. That would lower the margin below its gross definition; those belong to operating margin.
  • Using a revenue figure and a cost figure from different periods or currencies, which makes the percentage meaningless.
  • Entering revenue of zero for a new product and expecting a result. The margin needs sales above zero.

Sources

About this calculator

Gross margin percentage is (revenue − COGS) / revenue × 100 — the share of sales revenue left after paying only for the direct costs of producing what was sold (materials, direct labor, manufacturing overhead), before operating expenses like rent, marketing, or salaries are even considered.

Retailers and manufacturers use it product-by-product to see which items are actually worth stocking or promoting, and investors compare it across companies in the same industry as a proxy for pricing power and production efficiency — a software company might run 70-80% gross margins while a grocery retailer runs 20-25%, so the number is only meaningful next to industry peers.

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Comments (1)

  • Editorial team

    To set a price from a margin target, divide the unit cost by one minus the margin. For a cost of 45 and a 30% target, 45 ÷ 0.70 gives a price of 64.29, and entering 64.29 against 45 returns 30.00%. Using markup on the cost instead would give a different price, so decide which measure your target is. Which gross margin do you aim for in your own line of business?

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