How it works
Gross margin answers the pricing question: of every revenue dollar, how much survives after the direct cost of the product. The engine subtracts cost of goods sold from revenue and divides by revenue. Margin and markup are the classic confusion: a 40% margin (COGS at 60% of price) is a 66.7% markup on cost — the same numbers, different baselines. Businesses live on margins: 10-20% is thin (retail, groceries), 40-60% is healthy (software, branded products), 80%+ signals pricing power or, sometimes, unrealistically low cost inputs. The margin is also the ceiling for everything that comes after COGS — marketing, salaries, overhead — which is why the number matters as much as revenue. Raise the margin by raising price, cutting direct costs, or changing the mix toward higher-margin products; the engine makes the trade visible immediately. Every field in this calculator exists for a reason. Enter Revenue, Cost of goods sold, Gross margin, Gross profit, Revenue, All inputs stay in your browser. Adjust one field at a time to see which lever moves the answer most — the formula on this page lets you verify every step against the defaults shown in the worked example.
Formula
Gross margin = (Revenue - COGS) / Revenue x 100 | Markup = (Price - Cost) / Cost x 100
Tips
- Know your margin before discounting: a 20% off sale needs roughly 25% more units to break even at a 50% margin.
- Compare margin by product line, not just company-wide — the mix hides underperformers.
- Raising price 5% on a 40%-margin product adds roughly 8% to profit per unit.
- Track margin trend quarterly: a quiet drift down is the first sign of cost inflation or price erosion.
Frequently asked questions
- What is the difference between margin and markup?
- Margin is profit divided by selling price; markup is profit divided by cost. A 40% margin means you keep 40 cents of each revenue dollar; a 40% markup means you add 40% to your cost. The same deal has different numbers in each language — a common source of pricing errors.
- What is a good profit margin?
- It depends on the industry: groceries run 1-3% net, software 20-30% net, luxury brands 30%+. Gross margins follow the same curve — 10-20% thin, 40-60% healthy, 80%+ exceptional. Compare against your own sector, not a universal number.
- Does gross margin include operating costs?
- No — only direct product costs: materials, direct labour, shipping. Marketing, salaries, rent and utilities come out later as operating expenses. Gross margin measures the product; net margin measures the business.
- How do I improve my margin?
- Raise prices (the fastest lever — small increases are rarely volume-killers), cut direct costs (suppliers, shipping, waste), and shift the mix toward higher-margin products. Improve one point at a time so you can attribute the change.