Gross margin is one of the most important metrics for understanding your business profitability. It tells you how much money remains after covering direct production costs.
How This Calculator Works
> [!IMPORTANT] > Key Insight: A healthy gross margin gives you room to cover operating expenses and still make a profit. If gross margin is too low, no amount of sales growth will save you.
This calculator determines:
- Gross Profit - Revenue minus cost of goods sold
- Gross Margin Percentage - Profit as a percent of revenue
- Markup Percentage - Profit as a percent of cost
The Formulas Explained
Gross Profit
Gross Profit = Revenue - Cost of Goods Sold (COGS)
Gross Margin Percentage
Gross Margin % = (Gross Profit / Revenue) × 100
Industry Benchmarks
| Industry | Typical Gross Margin |
| Software/SaaS | 70-85% |
| Retail | 25-50% |
| Restaurants | 60-70% |
| Manufacturing | 25-35% |
| Grocery | 20-25% |
Step-by-Step Example
Scenario: $100,000 Revenue, $60,000 COGS
| Metric | Calculation | Result |
| Revenue | Given | $100,000 |
| COGS | Given | $60,000 |
| Gross Profit | $100,000 - $60,000 | $40,000 |
| Gross Margin | ($40,000 / $100,000) × 100 | 40% |
Frequently Asked Questions
What's included in COGS?
Direct costs to produce goods: raw materials, direct labor, manufacturing overhead. It does NOT include marketing, rent, or administrative salaries.
What's a "good" gross margin?
Depends entirely on industry. Compare to competitors. Generally, higher is better, but don't sacrifice quality or customer satisfaction.
How can I improve gross margin?
Raise prices, negotiate better supplier terms, improve production efficiency, or reduce waste. Often small improvements in each area compound significantly.
Key Points to Remember
- Gross margin must cover all operating expenses AND profit
- Compare to industry benchmarks for context
- Track trends over time - declining margin is a warning sign
- Price strategically - cheap isn't always better