How to calculate gross margin
Subtract COGS from revenue, then divide by revenue.
Enter revenue
Use net revenue after returns and discounts.
Add COGS
Include product cost, freight-in and direct production costs.
Compare with markup
Use margin for profitability and markup for pricing on cost.
What does this tool do?
Gross margin shows how much of each revenue dollar remains after the direct cost of goods. It is the first profitability check on a product or business and is often confused with markup, which is calculated on cost instead.
The Formula
Gross margin = (Revenue − COGS) ÷ Revenue × 100Frequently Asked Questions
How is gross margin different from markup?
Gross margin divides profit by revenue. Markup divides the same profit by cost, so markup is always the larger percentage for a profitable product.
What is a good gross margin?
It varies by industry: software and services often exceed 70%, while retail and distribution can run in the 20% to 40% range. Compare with direct competitors and your fixed cost base.