# What is my gross margin?

Computes gross profit and gross margin (gross profit as a percent of revenue) from revenue and cost of goods sold, or any two of the four.

- Page: https://www.acalculator.org/finance/gross-margin-calculator
- JSON spec: https://www.acalculator.org/finance/gross-margin-calculator.json
- Version: c5461827986d

## Default answer

Example with the default inputs (Revenue $500,000.00, Cost of goods sold $300,000.00): Revenue of $500,000.00 with $300,000.00 cost of goods sold is a gross profit of $200,000.00, a 40% gross margin.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| revenue | Revenue | Net sales: sales minus returns, allowances and discounts. |
| cost | Cost of goods sold | The direct cost of the goods or services sold (COGS, also called cost of sales). |
| margin | Gross margin | Gross profit as a percent of revenue: gross profit ÷ revenue × 100. |
| profit | Gross profit | Revenue minus the cost of goods sold. Negative for a gross loss. |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| revenue | Revenue | Net sales: sales minus returns, allowances and discounts. |
| cost | Cost of goods sold | The direct cost of the goods or services sold (COGS, also called cost of sales). |
| margin | Gross margin | Gross profit as a percent of revenue: gross profit ÷ revenue × 100. |
| profit | Gross profit | Revenue minus the cost of goods sold. Negative for a gross loss. |
| markup | Markup | The profit as a percent of the cost: P ÷ C × 100. |

## Method

M = P ÷ R × 100, where P = R − C. C is the cost of goods sold, R the revenue, P the gross profit and M the gross margin.

## Assumptions

- The cost of goods sold and the revenue are more than 0.
- The margin is a percent of the revenue (the selling price); the markup is a percent of the cost.
- A loss gives a negative profit and a negative margin. Margins run from −1,000% (a cost 11 times the revenue) to just under 100%; numbers outside that range, or that need a cost or revenue of 0 or less, have no answer.

## Worked examples

1. revenue = $1,200,000.00, cost = $780,000.00 gives profit = $420,000.00, margin = 35%, markup = 53.846154%. Source: hand calculation in content.mdx: 1,200,000 − 780,000 = 420,000; 420,000 ÷ 1,200,000 × 100 = 35%; 420,000 ÷ 780,000 × 100 = 53.85%.
2. revenue = $80,000.00, margin = 45% gives profit = $36,000.00, cost = $44,000.00. Source: hand calculation in content.mdx: 80,000 × 0.45 = 36,000; 80,000 − 36,000 = 44,000.
3. cost = $26,000.00, margin = 35% gives revenue = $40,000.00, profit = $14,000.00. Source: hand calculation in content.mdx: 26,000 ÷ (1 − 0.35) = 40,000; 40,000 − 26,000 = 14,000.
4. profit = $9,000.00, margin = 60% gives revenue = $15,000.00, cost = $6,000.00, markup = 150%. Source: hand calculation in content.mdx: 9,000 ÷ 0.60 = 15,000; 15,000 − 9,000 = 6,000; 9,000 ÷ 6,000 × 100 = 150%.

## FAQ

### How do I calculate gross margin?

Subtract the cost of goods sold (COGS) from revenue to get gross profit. Divide gross profit by revenue and multiply by 100. Revenue of $1,200,000 with $780,000 COGS gives $420,000 gross profit and a 35% gross margin.

### What goes into cost of goods sold?

The direct costs of what you sold: materials, the labor to make it, and goods bought for resale. Rent, marketing, office salaries and other overheads are operating expenses, not COGS, so they do not lower the gross margin.

### What is the difference between gross margin and net margin?

Gross margin only takes off the cost of goods sold. Net margin also takes off operating expenses, interest and tax, so it is lower. This calculator works out gross margin.

### What is the difference between gross margin and markup?

Gross margin divides gross profit by revenue; markup divides it by the cost. A 35% gross margin is a 53.85% markup, because the same $420,000 profit is compared with $780,000 of cost instead of $1,200,000 of revenue.

### How much revenue do I need for a target gross margin?

Divide the cost of goods sold by (1 − margin ÷ 100). With $26,000 of COGS and a 35% target, you need 26,000 ÷ 0.65 = $40,000 of revenue.

### Should I use gross or net revenue?

Use net sales: sales minus returns, allowances and discounts. That is the revenue line most income statements show before cost of sales.

## Sources

- U.S. Securities and Exchange Commission, Beginners' Guide to Financial Statements (net revenues are sales minus returns and allowances; gross profit is net revenues minus cost of sales). https://www.sec.gov/about/reports-publications/beginners-guide-financial-statements
- Hand derivation of the rearrangements from gross margin = (revenue − COGS) ÷ revenue × 100 (shown in full below).