Business tools
Gross Margin Calculator
Calculate Gross Profit and Gross Margin from revenue and cost of goods sold to measure core business profitability before operating expenses.
Use this Gross Margin Calculator to estimate Gross Profit and Gross Margin from Revenue and Cost of Goods Sold. Both figures should relate to the same accounting period. Calculations run locally in your browser; inputs are not saved.
Enter Revenue and Cost of Goods Sold for the same accounting period.
Gross Margin expresses Gross Profit as a share of period Revenue. Markup uses cost as its base and supports unit pricing; compare those pricing calculations with the Margin & Markup Calculator.
Gross Margin Example
Revenue: $1,000,000. Cost of Goods Sold: $600,000. Gross Profit = $1,000,000 − $600,000 = $400,000. Gross Margin = $400,000 ÷ $1,000,000 × 100 = 40.0%. COGS as a percentage of Revenue = 60.0%. The business retains $0.40 of gross profit per $1.00 of revenue before operating expenses. The dollar sign is illustrative; no currency is selected or converted.
About this calculator
What Is Gross Margin?
Gross Margin measures Gross Profit as a percentage of Revenue after subtracting Cost of Goods Sold (COGS). It describes the share of period revenue remaining after the direct costs entered here; it does not include operating expenses, interest or taxes.
Gross Margin Formula
Gross Margin = (Revenue − Cost of Goods Sold) ÷ Revenue × 100. COGS as % of Revenue = Cost of Goods Sold ÷ Revenue × 100. Both percentages are unavailable when Revenue is zero.
What Is Gross Profit?
Gross Profit is a dollar amount calculated as Revenue − Cost of Goods Sold. Gross Margin is that Gross Profit expressed as a percentage of Revenue.
What Is Cost of Goods Sold?
COGS generally represents direct costs attributable to the goods or services sold during a period. Classification varies by business and accounting method. Product costs may include inventory or manufacturing costs; service costs may include direct labor, contractors or other direct delivery costs. Use the classification consistent with your financial statements and accounting guidance.
What Does a High Gross Margin Mean?
A higher Gross Margin generally means a larger share of Revenue remains after the direct costs entered. Potential explanations include pricing, lower direct costs, product mix, operational efficiency or industry structure. It is not automatically better; interpret it in the context of the business and its accounting definitions.
What Does a Low Gross Margin Mean?
A lower Gross Margin may reflect higher direct costs, pricing pressure, discounts, product mix, inflation or industry norms. It is not automatically poor; consider business context, accounting definitions and other expenses.
Can Gross Margin Be Negative?
Yes. If COGS exceeds Revenue, Gross Profit and Gross Margin are negative, and COGS as a percentage of Revenue is above 100%. This means direct costs exceed Revenue for the entered period. The calculation does not diagnose the cause or establish insolvency or an overall net loss.
Gross Margin vs. Markup
Gross Margin uses Revenue as its base: Gross Profit ÷ Revenue. Markup uses cost as its base: Gross Profit ÷ Cost. For a $60 cost and $100 selling price, Gross Profit is $40, Gross Margin is 40%, and Markup is about 66.7%. The live Margin & Markup Calculator focuses on unit pricing and target prices rather than period financial-statement analysis.
Gross Margin vs. Operating Margin and Net Profit Margin
Gross Margin subtracts COGS from Revenue. Operating Margin also reflects operating expenses. Net Profit Margin considers all included expenses and final net income. Those are different income-statement measures; this Tool calculates Gross Profitability only.
Why Does Gross Margin Vary by Industry?
Gross Margin can differ substantially by industry, product type, business model, service mix, pricing strategy, scale and accounting classification. There is no universal benchmark band in this calculator, and a margin should not be interpreted without relevant business context.
Gross Margin and Financial Health
Gross Margin is one profitability measure and should not be used alone to assess financial health. Broader analysis may consider Operating Margin, EBITDA Margin, Net Profit Margin, Return on Assets, Return on Equity, cash flow, leverage, liquidity, working capital, debt structure and the consistency of accounting classifications. Use only relevant live calculators listed below; this Tool does not provide a comprehensive assessment.
Frequently asked questions
What is Gross Margin?
Gross Margin is Gross Profit divided by Revenue, expressed as a percentage. It shows the share of Revenue remaining after Cost of Goods Sold.
How do you calculate Gross Margin?
Subtract COGS from Revenue to find Gross Profit, then divide Gross Profit by Revenue and multiply by 100. When Revenue is zero, Gross Margin is N/A.
What is the difference between Gross Profit and Gross Margin?
Gross Profit is a dollar amount (Revenue minus COGS). Gross Margin is that amount expressed as a percentage of Revenue.
What is Cost of Goods Sold?
COGS generally includes direct costs attributable to goods or services sold. Its classification can vary by business and accounting method; use the treatment consistent with your financial statements.
What is a good Gross Margin?
There is no universal good-margin threshold. Margins vary by industry, business model, product or service mix, pricing strategy and accounting classification.
Is a higher Gross Margin always better?
Not automatically. It can mean a larger share of revenue remains after direct costs, but business context, mix, scale and other expenses also matter.
Can Gross Margin be negative?
Yes. If COGS exceeds Revenue, Gross Profit and Gross Margin are negative. This indicates direct costs exceed Revenue for the entered period; it does not diagnose the cause or determine overall financial health.
What is the difference between Gross Margin and Markup?
Gross Margin divides Gross Profit by Revenue; markup divides Gross Profit by cost. For a $60 cost and $100 selling price, the margin is 40% and markup is about 66.7%.
What is the difference between Gross Margin and Operating Margin?
Gross Margin subtracts COGS from Revenue. Operating Margin also accounts for operating expenses.
Why does Gross Margin vary by industry?
Direct costs, business models, product and service mix, pricing, scale and accounting classifications differ among industries.
Results depend on the user-entered information. Revenue and COGS should cover the same period. Accounting classification of direct costs can vary, and Gross Margin differs by industry and business model. This Tool does not determine accounting treatment, and the result should not be used alone to assess financial health. Informational use only; this is not accounting, tax, legal, investment or financial advice. Calculations run locally in your browser; inputs are not saved or sent to a server.