Gross Margin Calculator
Gross margin is gross profit as a share of revenue, and the most common error in using it is confusing it with markup.
Gross margin
40.00%
- Gross profit
- $100,000.00
- Markup on cost
- 66.67%
- Cost of goods sold as share of revenue
- 60.00%
Values update as you type. This calculator covers the single scenario its formula assumes — see Common Mistakes for what it leaves out.
The formula this calculator uses
gross margin = (revenue - cost of goods sold) / revenue
- GM
- Gross margin, as a percentage of revenue
- GP
- Gross profit, revenue minus cost of goods sold
- R
- Revenue for the period
How to check the result by hand
- 1
Take revenue from the income statement
Gross sales for the period, after returns and discounts but before any costs are deducted. Use the same period as the cost figure.
- 2
Take the cost of goods sold
Materials, direct labour and production overhead. Exclude office rent, sales salaries, marketing and administration, which are operating costs.
- 3
Subtract to get gross profit
Two hundred and fifty thousand minus one hundred and fifty thousand leaves one hundred thousand. This is the amount revenue contributes to fixed costs.
- 4
Divide gross profit by revenue
One hundred thousand over two hundred and fifty thousand is 0.4, or forty percent. This is gross margin.
- 5
Compare with markup if you price from cost
One hundred thousand over one hundred and fifty thousand is 0.667, a sixty six point seven percent markup. The same business, two different denominators.
For worked examples, common mistakes and the limits of this formula, read the full How To Calculate Gross Margin page.