Gross Margin Calculator
The gross margin calculator turns your cost of goods and your revenue into a gross margin percentage. Enter the direct cost to make or buy the item and the revenue (or price) you take for it, and it returns the gross profit in dollars and the gross margin percentage. Gross margin is one of the clearest signals of whether a product line pays its way before overheads. Treat the result as an estimate and confirm any real financial decision with your accountant.
Calculator
The formula
Gross margin % = (revenue − cost of goods) ÷ revenue × 100
Subtract the cost of goods from the revenue to get gross profit, divide by revenue, and multiply by 100. It measures profit as a share of what you earn, so it is directly comparable across products of different prices.
Worked example
An item costs $18 in materials and sells for $30.
- Gross profit = 30 − 18 = $12
- Gross margin = 12 ÷ 30 × 100 = 40%
So 40 cents of every dollar of revenue is gross profit, before overheads.
Frequently asked questions
- What counts as cost of goods?
- The direct costs of producing or buying the item — materials, and the labour or purchase price tied to that unit. It excludes rent, salaries and marketing, which belong to overheads and net margin.
- What is a healthy gross margin?
- It varies enormously by industry, so there is no single benchmark. Compare against your own history and similar products rather than a universal target, and discuss goals with your accountant.
- Is gross margin the same as profit?
- No. Gross margin is profit before overheads, tax and other operating costs. It shows product-level profitability, not the profit the whole business keeps.
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