Gross Margin Calculator

With our gross margin calculator, we aim to help you quickly determine your gross margin by inputting just the revenue and cost of goods sold. To explore related tools, check out our margin calculator and net profit margin calculator.

This tool is designed to improve your understanding of:

• What gross margin is;
• How to calculate gross margin; and
• Why gross margin matters for your business

We’ve also included practical examples to guide you through the calculation process using the gross margin formula.

Gross margin is a financial metric that reveals how effectively a business manages its direct costs in relation to the revenue it generates. It highlights the portion of sales revenue that remains after deducting costs directly associated with producing or purchasing goods.

By focusing on gross margin, businesses can gauge their cost efficiency, evaluate pricing strategies, and monitor overall profitability.

Now that we understand the definition of gross margin, let's explore an example to understand better how to calculate it.

Let's assume Company Alpha has the following financial performance:

• Revenue: $1,000,000
• Cost of goods sold (COGS): $350,000

1. Determine the revenue.

   The first step is identifying the total revenue generated from selling your products or services.

   In our instance, that would be $1,000,000. Our revenue calculator can help you with this.

2. Find out the COGS.

   Next, you need to determine the cost of goods sold. These are the direct expenses such as materials, labour, and other costs directly tied to production or acquisition.

   In our example, the COGS is $350,000.

   You can use our cost of goods sold calculator to facilitate this calculation.

3. Compute the gross profit.

   The next step is to calculate the gross profit. You can do that using the following formula:

   gross profit = revenue - COGS

   For our example, the gross profit is $1,000,000 - $350,000 = $650,000.

4. Calculate the gross margin.

   The final step is to calculate the gross margin using the gross margin formula below:

   gross margin = gross profit / revenue

   Hence, Company Alpha's gross margin is $650,000 / $1,000,000 = 65%.

Gross margin is a vital indicator of a business's financial health. It reveals how effectively your company manages the costs directly tied to producing or acquiring your products, highlighting the efficiency of your operations.

A healthy gross margin not only ensures that your core business activities are profitable, but also provides the flexibility to cover other expenses, invest in growth, and remain competitive in the market. In our opinion, understanding and monitoring your gross margin is essential — it helps you identify areas for cost improvement and supports strategic decision-making that can drive long-term success.