Gross Margin Calculator

What are gross profit and gross margin?

Gross profit is revenue minus the cost of goods sold (COGS): what is left after covering the direct cost of producing or delivering what was sold. Gross margin, also called gross profit margin, expresses that same figure as a percentage of revenue, which makes it easier to compare across products, periods, or companies of different sizes.

Gross margin formula

• Gross profit = Revenue − COGS
• Gross margin % = Gross profit ÷ Revenue × 100
• COGS as % of revenue = COGS ÷ Revenue × 100

The gross profit margin formula uses the same numerator as gross profit, then divides by revenue. Revenue and COGS must use the same currency and refer to the same scope (for example, both for one product line, or both for one reporting period).

What belongs in COGS

Cost of goods sold typically includes direct costs tied to producing or delivering what was sold: materials, direct labor, and production overhead directly attributable to those goods or services. It typically excludes indirect costs such as marketing, sales, general administration, and R&D — those are subtracted later, in a net profit margin calculation, not here. Exact COGS treatment can vary by accounting standard, industry, and company policy, so use figures consistent with your own accounting rather than a fixed universal definition.

Gross margin vs net profit margin

Gross margin only nets out COGS. Net profit margin nets out every cost of running the business — operating expenses, interest, and taxes, in addition to COGS — and is always equal to or lower than gross margin for the same revenue. A business can have a high gross margin and still run at a net loss if operating costs are large relative to revenue; this calculator reports gross margin only and does not calculate net profit margin.

Gross margin vs markup

Gross margin and markup describe related but distinct things: gross margin is gross profit as a percentage of revenue, while the Markup Calculator expresses the same kind of profit as a percentage of cost instead. The two percentages are equal only when profit is $0, and diverge more as the percentage grows — see the Markup Calculator for a worked comparison.

Worked example

Consider a product line with:

• Revenue = $80,000
• Cost of goods sold (COGS) = $48,000

Gross profit = $80,000 − $48,000 = $32,000
Gross margin = $32,000 ÷ $80,000 × 100 = 40%
COGS as % of revenue = $48,000 ÷ $80,000 × 100 = 60%

Use the “Load example” button above to load this exact scenario into the calculator.

Negative gross profit

When COGS exceeds revenue, gross profit and gross margin are both negative — for example, $30,000 revenue against $40,000 COGS gives a gross profit of −$10,000 and a gross margin of about −33.3%. This calculator supports and displays negative results without adjustment, since it is a factually meaningful outcome.

Why gross margin varies by business model

Businesses with low direct production cost relative to price — such as software, where the marginal cost of serving one more customer is small — tend to run high gross margins. Businesses with high direct production cost relative to price — such as low-margin retail or heavy manufacturing — tend to run lower ones. This calculator does not label any result as universally good or bad, since there is no single benchmark that applies across industries and business models.

Limitations

• This calculator only computes gross margin; it does not include operating expenses, interest, taxes, or net profit margin.
• It does not apply any specific accounting standard, and what counts as COGS can vary by company and jurisdiction.
• Results are only as accurate as the revenue and COGS figures you enter.
• This is a planning estimate, not accounting, tax, legal, or financial advice.

Related pricing calculators

For the same margin formula applied more generally to revenue and total cost, see the Profit Margin Calculator. For the cost-based counterpart to margin, see the Markup Calculator. For a fuller comparison with worked examples and a conversion table, see the Profit Margin vs Markup guide.