Gross Margin Calculator
Calculate gross profit margin percentage from revenue and cost of goods sold.
Essential for pricing strategy and business health analysis.
What Is Gross Margin?
Gross margin (also called gross profit margin) measures how much profit remains from revenue after subtracting the direct cost of producing goods or services. It is one of the most important indicators of business financial health.
The Formula
Gross Profit = Revenue − Cost of Goods Sold (COGS)
Gross Margin % = (Gross Profit ÷ Revenue) × 100
What Counts as COGS?
Cost of Goods Sold includes only direct costs tied to production:
- Raw materials
- Direct manufacturing labor
- Factory overhead
It does NOT include indirect costs like marketing, office rent, or salaries of non-production staff.
Gross Margin Benchmarks by Industry
| Industry | Typical Gross Margin |
|---|---|
| Software / SaaS | 70% – 90% |
| Retail (general) | 25% – 45% |
| Restaurants | 60% – 70% |
| Manufacturing | 25% – 35% |
| Grocery stores | 25% – 30% |
| Consulting | 60% – 80% |
| Pharmaceuticals | 60% – 75% |
Practical Example
A product sells for $150. The materials and direct labor cost $60 to produce.
- Gross Profit = $150 − $60 = $90
- Gross Margin = ($90 ÷ $150) × 100 = 60%
This means for every dollar of revenue, 60 cents is available to cover operating expenses and profit.
Gross Margin vs Markup
These are often confused:
- Gross margin = profit as a % of selling price
- Markup = profit as a % of cost
A 50% markup ($10 cost → $15 price) = 33% gross margin. A 100% markup ($10 cost → $20 price) = 50% gross margin.
Why It Matters
Low gross margins leave little room for operating expenses, marketing, and profit. Improving gross margin means either raising prices or reducing production costs.