What is gross margin and how is it calculated?

Gross margin is the percentage of revenue remaining after subtracting the cost of goods sold (COGS). The formula is: Gross Margin = ((Revenue - COGS) / Revenue) × 100. For example, if you sell a product for $100 and it costs $60 to make, your gross margin is 40%.

What's the difference between gross margin and gross profit?

Gross profit is a dollar amount (Revenue minus COGS), while gross margin is a percentage (Gross Profit divided by Revenue × 100). If you have $500,000 in revenue and $300,000 in COGS, your gross profit is $200,000 and your gross margin is 40%.

What is a good gross margin percentage?

A "good" gross margin varies significantly by industry. SaaS companies typically achieve 70-85%, retail businesses average 25-35%, manufacturing ranges from 25-45%, and restaurants operate on 60-70%.

How is gross margin different from net margin?

Gross margin only accounts for direct production costs (COGS), while net margin includes ALL expenses—operating costs, taxes, interest, and overhead. Gross margin shows production efficiency; net margin shows overall profitability.

What's the difference between margin and markup?

Margin is calculated as a percentage of the selling price, while markup is calculated as a percentage of the cost. If a product costs $60 and sells for $100: Margin = ($40/$100) = 40%, but Markup = ($40/$60) = 66.7%.

How can I improve my gross margin?

There are two levers: increase revenue per unit or decrease COGS. Strategies include: negotiating better supplier terms, reducing material waste, increasing prices strategically, improving production efficiency, and automating manual processes.

What costs are included in COGS for gross margin calculation?

COGS includes direct costs to produce goods/services: raw materials, direct labor, manufacturing supplies, and shipping costs for inventory. It does NOT include indirect costs like marketing, administrative salaries, rent, or utilities.

How do I calculate gross margin from cost and desired margin?

To find the selling price needed for a target gross margin, use: Selling Price = Cost / (1 - Target Margin). For example, if your cost is $60 and you want a 40% margin: $60 / (1 - 0.40) = $60 / 0.60 = $100 selling price.

Gross Margin Calculator

Calculate your gross margin instantly. Compare against 15+ industry benchmarks. Get AI-powered recommendations to improve profitability.

Enter Your Values

Revenue (Sales)*

Total sales revenue before any deductions

Cost of Goods Sold (COGS)*

Direct costs to produce your goods/services: materials, direct labor, manufacturing costs

Previous Period Margin (Optional)

Enter last period's gross margin to see trend

Formula

Gross Margin (%) = ((Revenue - COGS) / Revenue) × 100

Gross margin represents the percentage of each dollar of revenue that remains after paying for direct production costs. A 40% gross margin means you keep $0.40 from every $1 in sales to cover operating expenses and profit.

Gross Margin40.0%

40.0% — Healthy margins for retail and manufacturing.

Gross Profit$40,000

Revenue$100,000

Cost of Goods Sold$60,000

Markup Percentage66.7%

Revenue per $1 COGS$1.67

Margin CategoryRetail Level

If COGS -10%46.0% margin (+$6,000)

Gross Margin Benchmarks by Industry

Software/SaaS70-85% — Highly scalable businesses

> 70%

Services50-70% — Professional services, restaurants

50% – 69.99%

Retail/E-commerce30-50% — Retail, e-commerce, manufacturing

30% – 49.99%

Wholesale15-30% — Wholesale, distribution, grocery

15% – 29.99%

Low MarginUnder 15% — Very thin, high volume required

0% – 14.99%

Source: NYU Stern, Industry Benchmarks 2024

How to Calculate Gross Margin

Enter your total revenue (sales) in the first field
Enter your Cost of Goods Sold (COGS) in the second field
Optionally add previous period margin for trend analysis
View your gross margin percentage, gross profit, and markup
Compare your results against industry benchmarks
Get AI-powered recommendations for improvement

Gross Margin Benchmarks by Industry

70-85%

SaaS / Software

50-70%

Professional Services

40-60%

E-commerce (General)

45-55%

Retail (Apparel)

25-35%

Retail (Grocery)

25-45%

Manufacturing

60-70%

Restaurants

15-25%

Construction

15-25%

Wholesale Distribution

40-60%

Healthcare Services

60-80%

Financial Services

40-60%

Real Estate

Source: NYU Stern, Industry Benchmarks 2024

Gross Margin Calculator

Gross Margin Benchmarks by Industry

How to Calculate Gross Margin

Gross Margin Benchmarks by Industry

Frequently Asked Questions

What is gross margin and how is it calculated?

What's the difference between gross margin and gross profit?

What is a good gross margin percentage?

How is gross margin different from net margin?

What's the difference between margin and markup?

How can I improve my gross margin?

What costs are included in COGS for gross margin calculation?

How do I calculate gross margin from cost and desired margin?