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Gross Margin Calculator

Gross margin, calculated as (Revenue - COGS) / Revenue x 100, measures how much of each revenue dollar remains after covering the direct cost of goods sold. A company with $500,000 in revenue and $300,000 in COGS has a gross margin of 40%, meaning $0.40 of every revenue dollar covers operating expenses and profit. Enter your revenue and cost of goods sold below to compute gross profit, gross margin, and markup percentage instantly.

Quick Answer

A business with $500,000 in revenue and $300,000 in COGS has a gross profit of $200,000, a gross margin of 40.00%, and a markup of 66.67%.

Common Examples

Input Result
$500,000 revenue, $300,000 COGS $200,000 profit, 40.00% margin, 66.67% markup
$100,000 revenue, $45,000 COGS $55,000 profit, 55.00% margin, 122.22% markup
$1,000,000 revenue, $750,000 COGS $250,000 profit, 25.00% margin, 33.33% markup
$250,000 revenue, $200,000 COGS $50,000 profit, 20.00% margin, 25.00% markup
$80,000 revenue, $80,000 COGS $0 profit, 0.00% margin, 0.00% markup

How It Works

This calculator uses three standard profitability formulas:

Gross Profit = Revenue - COGS

Gross Margin = (Gross Profit / Revenue) x 100

Markup Percentage = (Gross Profit / COGS) x 100

Where:

  • Revenue = total sales income or selling price
  • COGS = cost of goods sold, the direct costs attributable to producing or acquiring the goods sold
  • Gross Profit = the dollar amount remaining after subtracting COGS from revenue
  • Gross Margin = profit expressed as a percentage of revenue
  • Markup Percentage = profit expressed as a percentage of cost

Gross Margin vs. Profit Margin

Gross margin and profit margin are related but distinct. Gross margin uses only cost of goods sold (COGS), which includes direct production costs like materials, manufacturing labor, and shipping. Net profit margin additionally subtracts operating expenses, taxes, interest, and all other costs. Gross margin is typically higher than net profit margin because it excludes overhead.

Gross Margin vs. Markup

Gross margin and markup both describe profitability, but from different reference points. Gross margin expresses profit as a fraction of the selling price. Markup expresses profit as a fraction of cost. A 50% gross margin corresponds to a 100% markup. A 25% gross margin corresponds to a 33.33% markup. The relationship:

Markup = Margin / (1 - Margin/100) x 100

Margin = Markup / (1 + Markup/100) x 100

Worked Example

A manufacturer generates $500,000 in revenue with $300,000 in COGS. Gross profit = $500,000 - $300,000 = $200,000. Gross margin = $200,000 / $500,000 x 100 = 40.00%. Markup = $200,000 / $300,000 x 100 = 66.67%. This means 40 cents of every revenue dollar is gross profit, and the selling price is 66.67% above cost.

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Frequently Asked Questions

What is gross margin?
Gross margin is the percentage of revenue that remains after subtracting the cost of goods sold (COGS). It measures how efficiently a company produces or acquires its goods relative to its revenue. A 40% gross margin means that for every $1 in revenue, $0.40 remains after covering direct production costs.
What is a good gross margin?
Gross margins vary significantly by industry. Software companies often achieve 70% to 90% gross margins because digital products have minimal per-unit costs. Retail businesses typically operate at 25% to 50%. Grocery stores may see 20% to 30%. Manufacturing often falls between 25% and 40%. Comparing gross margins within the same industry provides the most meaningful benchmark.
What is the difference between gross margin and markup?
Gross margin is profit divided by revenue. Markup is profit divided by cost. They describe the same profit from different reference points. A 50% gross margin equals a 100% markup. A 33.33% gross margin equals a 50% markup. Markup is always a larger number than gross margin for the same transaction.
How is gross margin different from net margin?
Gross margin subtracts only the cost of goods sold from revenue. Net margin subtracts all expenses, including operating costs, taxes, interest, and depreciation. Gross margin measures production efficiency, while net margin measures overall profitability. A company can have a high gross margin but a low net margin if operating expenses are significant.
Can gross margin be negative?
Yes. A negative gross margin means COGS exceeds revenue, indicating the business is losing money on every unit sold before even accounting for operating expenses. This can happen when selling inventory below cost, such as during clearance sales, or when production costs spike unexpectedly.