Gross Margin Calculator
Analyze your profitability and pricing strategy
What is Gross Margin?
Gross margin represents the percentage of total sales revenue that a company retains after incurring the direct costs associated with producing the goods and services sold by the company. The higher the margin, the more the company retains on each dollar of sales to service its other costs and obligations.
The Calculation Formula
To calculate the gross margin manually, use the following steps:
- Gross Profit: Revenue – Cost of Goods Sold (COGS)
- Gross Margin %: (Gross Profit / Revenue) x 100
- Markup %: (Gross Profit / COGS) x 100
Example Calculation
Imagine you sell a premium leather wallet for $100 (Revenue). The leather, thread, and labor required to make the wallet cost you $40 (COGS).
Gross Profit = $100 – $40 = $60
Gross Margin = ($60 / $100) * 100 = 60%
Markup = ($60 / $40) * 100 = 150%
Margin vs. Markup: The Key Difference
Many business owners use these terms interchangeably, but they represent different perspectives. Gross Margin is based on the selling price and determines the profit share of that price. Markup is based on the cost price and determines how much you added to the cost to reach the selling price. Margin can never exceed 100%, but markup can be several hundred or even thousands of percent.