How is gross margin different from net margin?

Gross margin removes only direct costs (COGS) from revenue, showing how much is left to cover overhead and profit. Net margin goes further by subtracting operating expenses, interest, and taxes to show the percentage of revenue that becomes bottom-line profit.

What is a good gross margin?

It varies widely by industry and business model. Software and digital products may have gross margins of 70–90% or more, while retail or manufacturing businesses may see margins in the 20–50% range. Comparing your margin to peers and your own historical performance is more useful than aiming for a single universal target.

Should I include shipping, payment processing, or subcontractor costs in COGS?

If those costs scale directly with each sale (for example, per-order shipping or per-transaction payment fees), many businesses treat them as part of COGS for margin analysis. The key is to be consistent so that your gross margin reflects the true direct cost of generating revenue.

Can I use this calculator for service or subscription businesses?

Yes. Treat direct labor, hosting, support, or other per-customer costs as COGS, and revenue as subscription or service income. Gross margin is still a useful way to see how much value you create relative to the resources you consume to deliver the service.

Does this replace full financial statements?

No. Gross margin is just one slice of profitability. You still need proper accounting, cash-flow tracking, and full financial statements to understand your overall financial health.

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Gross Margin Calculator

Find gross profit and gross margin percentage from revenue and cost of goods sold.

Results

Gross profit: $50,000 USD
Gross margin: 41.67%

How to use this calculator

Enter total revenue for the product, service, or period you want to analyze (for example, monthly revenue for a product line or annual revenue for your business).
Enter the matching cost of goods sold (COGS) for that same product or time period—limit this to direct costs, not overhead or general operating expenses.
Click calculate to see gross profit in dollars and gross margin as a percentage of revenue.
Review the outputs and compare them to your historical margins, targets, or industry benchmarks to judge how healthy or weak your margins are.
Optionally, tweak revenue or COGS inputs to model price changes, cost reductions, or supplier negotiations and see how your gross margin would move.

Inputs explained

Revenue: Sales or service revenue for the specific product, line of business, or time period you are analyzing. Use net sales (after discounts and returns) if you want gross margin to reflect actual realized revenue.
COGS: Cost of goods sold (COGS)—the direct costs tied to producing or delivering the product or service. This usually includes materials, direct labor, manufacturing costs, and any other expenses that scale with units sold. Do not include overhead, rent, administrative salaries, or marketing here.

How it works

You enter revenue for a product, service line, or time period along with the associated cost of goods sold (COGS)—the direct costs required to produce or deliver that revenue.

The calculator computes gross profit as Revenue − COGS, which represents the dollars left over to pay for overhead, salaries, marketing, and profit.

Gross margin is then calculated as Gross profit ÷ Revenue, expressed as a percentage, so you can compare profitability across different products or periods regardless of scale.

Because gross margin is a relative measure, it is especially useful for comparing offerings with very different price points or volumes and for tracking improvements as you adjust pricing or reduce costs.

The logic assumes that COGS includes only direct costs—materials, direct labor, and other expenses that scale with each unit sold—while overhead and fixed costs remain outside this calculation.

Formula

Gross profit = Revenue − COGS
Gross margin = (Gross profit ÷ Revenue) × 100

Example: If revenue is $120,000 and COGS is $70,000, gross profit is $50,000 and gross margin is ($50,000 ÷ $120,000) × 100 ≈ 41.7%.

When to use it

Benchmarking product lines, SKUs, or service packages to see which ones generate the highest gross margin and deserve more focus.
Testing how price increases, discounts, or cost reductions would impact gross profit and gross margin before you roll changes out to customers.
Preparing quick profitability snapshots for board decks, investor updates, or internal reviews without pulling a full set of financial statements.
Comparing your gross margin to industry norms to identify whether your pricing or cost structure is competitive, too thin, or unusually strong.
Evaluating new product ideas by modeling expected revenue and direct costs to see whether the projected gross margin meets your targets.
Monitoring margin trends over time (monthly or quarterly) to catch issues such as rising input costs, excessive discounting, or mix shifts toward lower-margin offerings.

Tips & cautions

Be disciplined about what you classify as COGS versus overhead—misclassifying expenses can make gross margin look artificially high or low.
Run the calculator separately for different customer segments or channels (e.g., wholesale vs. direct-to-consumer) to see where margins are strongest or weakest.
Use realistic, all-in direct costs that include freight, packaging, payment processing fees tied to each sale, or subcontractor costs where appropriate.
When planning price increases, plug in several candidate prices and see how each one affects the gross margin percentage at the same cost structure.
If you sell bundles or subscriptions, estimate an average direct cost per unit or per subscriber so your gross margin analysis still reflects real economics.
This calculator focuses solely on gross margin and does not incorporate operating expenses, interest, taxes, or other components of full profitability (such as EBITDA or net margin).
Results are only as accurate as your COGS classification—if you omit important direct costs or lump them into overhead, your gross margin will be overstated.
The model assumes a single revenue and COGS figure for the period; it does not break down fixed vs. variable costs or handle complex cost-allocation schemes.
Industry definitions of COGS can vary, especially for services or software businesses where the line between direct and indirect costs is fuzzy.
This is not a substitute for GAAP/IFRS-compliant financial statements or professional accounting; treat it as a quick planning and analysis tool.

Worked examples

Baseline product: $120,000 revenue, $70,000 COGS

Revenue = $120,000, COGS = $70,000.
Gross profit = $120,000 − $70,000 = $50,000.
Gross margin = $50,000 ÷ $120,000 ≈ 0.417, or about 41.7%.
Interpretation: For every $1 in sales, you keep about $0.42 to cover overhead and profit.

Higher-margin offer: $50,000 revenue, $20,000 COGS

Revenue = $50,000, COGS = $20,000.
Gross profit = $50,000 − $20,000 = $30,000.
Gross margin = $30,000 ÷ $50,000 = 0.6, or 60%.
Interpretation: Even though revenue is lower than the first example, each dollar of sales is more profitable, leaving more room for overhead and profit.

Testing a price increase with stable costs

Current scenario: Revenue = $80,000, COGS = $48,000 → Gross profit = $32,000 → Gross margin = 40%.
Proposed price increase raises revenue to $88,000 at the same COGS = $48,000.
New gross profit = $88,000 − $48,000 = $40,000.
New gross margin = $40,000 ÷ $88,000 ≈ 45.5%, showing how a modest price change can significantly improve margin.

Deep dive

Calculate gross profit and gross margin in seconds by entering revenue and cost of goods sold (COGS) to quickly gauge product or business profitability.

Use this gross margin calculator to benchmark products, test price and cost changes, and identify where your margins are strong or dangerously thin.

Compare your gross margin percentage to targets or industry averages so you can make smarter decisions about pricing, discounts, and cost control.

FAQs

How is gross margin different from net margin?: Gross margin removes only direct costs (COGS) from revenue, showing how much is left to cover overhead and profit. Net margin goes further by subtracting operating expenses, interest, and taxes to show the percentage of revenue that becomes bottom-line profit.
What is a good gross margin?: It varies widely by industry and business model. Software and digital products may have gross margins of 70–90% or more, while retail or manufacturing businesses may see margins in the 20–50% range. Comparing your margin to peers and your own historical performance is more useful than aiming for a single universal target.
Should I include shipping, payment processing, or subcontractor costs in COGS?: If those costs scale directly with each sale (for example, per-order shipping or per-transaction payment fees), many businesses treat them as part of COGS for margin analysis. The key is to be consistent so that your gross margin reflects the true direct cost of generating revenue.
Can I use this calculator for service or subscription businesses?: Yes. Treat direct labor, hosting, support, or other per-customer costs as COGS, and revenue as subscription or service income. Gross margin is still a useful way to see how much value you create relative to the resources you consume to deliver the service.
Does this replace full financial statements?: No. Gross margin is just one slice of profitability. You still need proper accounting, cash-flow tracking, and full financial statements to understand your overall financial health.

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This gross margin calculator is a simplified planning and benchmarking tool. It assumes you provide accurate revenue and cost of goods sold figures and does not include overhead, allocations, financing costs, or taxes. It is not a substitute for GAAP/IFRS financial reporting or professional accounting advice. Always review important business decisions and financial metrics with a qualified accountant or finance professional.