Gross Margin Calculator
An item sold for $48 that cost $30 to buy or make has a gross margin of 37.5%: $18 of gross profit on every sale. Enter your own price and cost of goods sold in the gross margin calculator.
Gross margin
- Gross margin Gross profit / revenue = $18.00 / $48.00.
- 37.5%
- Gross profit $48.00 revenue less $30.00 of cost.
- $18.00
- Net margin Net profit / revenue = $9.00 / $48.00, after $9.00 of operating expenses.
- 18.75%
- Net profit
- $9.00
- Equivalent markup on cost A 37.5% margin and a 60% markup are the same price. They describe the same transaction over different denominators, and they are only equal at zero.
- 60%
- Total for 1,200 units
- $57,600.00 revenue, $21,600.00 gross profit, $10,800.00 net profit
- Price for a 45% margin cost / (1 - margin). Marking the cost up by 45% instead gives $43.50, which is only a 31% margin, $11.05 per unit short.
- $54.55
- A 1% price rise vs a 1% cost cut The price rise is worth more, because revenue is the larger number. This is why pricing beats procurement at most margins.
- $0.48 vs $0.30 of extra profit
| Margin | Markup | Price on a $30.00 cost |
|---|---|---|
| 10% | 11.1% | $33.33 |
| 20% | 25% | $37.50 |
| 25% | 33.3% | $40.00 |
| 33.3% | 49.9% | $44.98 |
| 40% | 66.7% | $50.00 |
| 50% | 100% | $60.00 |
| 60% | 150% | $75.00 |
| 75% | 300% | $120.00 |
- Margin divides profit by revenue; markup divides it by cost. A 50% margin is a 100% markup. Confusing them systematically underprices, because markup is always the larger number.
- Gross margin excludes operating expenses and net margin includes them. Neither accounts for tax or interest; that would be net income rather than net profit.
How the Profit Margin Calculator works
Gross margin is the share of each sales dollar left after the cost of goods sold. The gross margin formula is (revenue - cost of goods sold) / revenue. The dollar figure on top of that fraction is gross profit.
On the example above, $48 less $30 is $18 of gross profit, and $18 / $48 is a gross margin percentage of 37.5%. Over 1,200 sales that is $57,600 of revenue and $21,600 of gross profit.
Cost of goods sold is the cost of the thing sold and nothing else. For a retailer it is the wholesale price plus inbound freight. For a manufacturer it is materials, direct labor and factory overhead. Rent on the office, salaries outside production, software and marketing are operating expenses and sit below the gross line. Putting them into cost of goods sold makes the gross margin look worse and the operating costs look smaller, and it makes the figure useless for comparing with anyone else.
Gross margin and markup describe the same sale over different denominators. Markup divides the $18 by the $30 cost, which gives 60%. Margin divides it by the $48 price, which gives 37.5%. Markup is always the larger number, so quoting a markup where a margin was meant overstates profit. Pricing works the other way round: to reach a 45% gross margin on a $30 cost the price is $30 / (1 - 0.45) = $54.55. Adding 45% to the cost gives $43.50, which is a 31% margin.
Gross margin and net margin answer different questions. Gross margin measures the product: whether the price covers what the goods cost. Net margin subtracts operating expenses as well and measures the business. In the example, $9 of operating expenses per sale leaves $9 of net profit, an 18.75% net margin. A business needs the gross profit to be large enough to pay for everything below it.
Profit Margin Calculator FAQ
What is the gross margin formula?
Gross margin = (revenue - cost of goods sold) / revenue. A $48 sale with $30 of cost of goods sold has $18 of gross profit and a 37.5% gross margin. Multiply by 100 for the percentage.
What is the difference between gross margin and gross profit?
Gross profit is the dollar amount: revenue less cost of goods sold, $18 in the example. Gross margin is that amount as a share of revenue, 37.5%. The margin lets you compare products and businesses of different sizes.
Is gross margin the same as markup?
No. Both start from the same $18 of gross profit, but margin divides by the $48 price and markup divides by the $30 cost. That gives a 37.5% margin and a 60% markup. Markup is always the higher of the two.
What goes into cost of goods sold?
The direct cost of what was sold: the purchase price of goods for resale, materials, production labor and inbound freight. Rent, office salaries, marketing and software are operating expenses. They reduce net margin and leave gross margin alone.