Gross margin is gross profit expressed as a percentage of revenue, where gross profit is revenue minus the direct cost of producing what you sold. It measures how much of every pound of sales survives production, before any overhead, marketing, salaries or interest are taken out. It is the first line of defence in a business: everything else has to be paid for out of it.
The persistent confusion is between margin and markup. Margin divides profit by revenue; markup divides the same profit by cost. A product bought for 60 and sold for 100 carries a 40% margin and a 66.7% markup — identical money, two different denominators. Quoting one when a supplier or investor means the other is one of the most common and most expensive mistakes in pricing, which is why this calculator reports both.
What counts as a good gross margin depends entirely on the business model. Grocery retail runs in the low twenties, manufacturing typically thirty to forty, and software often above eighty because the marginal cost of another copy is close to nothing. Compare yourself against your own sector and your own history, never against a general benchmark.
The formula
revenue- Sales in the period, net of returns
COGS- Direct costs of producing the goods or services sold
Gross profit- revenue − COGS
Markup %- Gross profit ÷ COGS × 100 — the same profit over a different base
How to use this calculator
- Enter total revenue for the period.
- Enter the cost of goods sold for the same period.
- Read the gross margin percentage on the gauge.
- Check the markup figure below if you are pricing from cost rather than from a target margin.
Worked examples
Revenue 250,000 against COGS 150,000
Gross profit is $100,000 and the gross margin is 40.0%. The same profit over the $150,000 of cost is a markup of 66.7% — the number a supplier is more likely to quote.
Why the two denominators diverge
At a 20% margin the markup is 25.0%. At a 50% margin the markup is 100%. At an 80% margin it is 400%. The gap widens rapidly, so confusing the two on a high-margin product can misprice it by multiples.
How to read your score
Frequently asked questions
What is the difference between gross margin and markup?
Both measure the same profit. Margin divides it by the selling price, markup divides it by the cost. A 40% margin is a 66.7% markup, and a 50% markup is only a 33.3% margin. Always confirm which base is being used before agreeing a price.
What belongs in cost of goods sold?
Direct costs only: materials, the labour used to make or deliver the product, inbound freight and manufacturing overhead. Rent, administration, sales salaries and interest sit below the gross line, in operating expenses.
Is gross margin the same as gross profit?
No. Gross profit is money; gross margin is that money as a percentage of revenue. Two businesses can share a gross profit figure and have completely different margins if their revenue differs.
Can gross margin be negative?
Yes, if COGS exceeds revenue. It means each sale loses money before any overhead, which is usually a pricing failure or an inventory write-down rather than a temporary dip.
How do I convert a target margin into a price?
Divide the cost by one minus the margin. A cost of 60 at a 40% target margin needs a price of 60 ÷ 0.6 = 100. Multiplying the cost by 1.4 gives 84, which is a 40% markup and only a 28.6% margin — the classic error.
Margin and markup reference
| Cost | Price | Gross profit | Margin | Markup |
|---|---|---|---|---|
| $60 | $100 | $40 | 40.0% | 66.7% |
| $75 | $100 | $25 | 25.0% | 33.3% |
| $50 | $100 | $50 | 50.0% | 100.0% |
| $20 | $100 | $80 | 80.0% | 400.0% |
| $150 | $250 | $100 | 40.0% | 66.7% |
| $400 | $500 | $100 | 20.0% | 25.0% |
Margin and markup describe identical money over different denominators.
| Target margin | Price multiplier on cost | Equivalent markup | Price when cost is $60 |
|---|---|---|---|
| 10% | 1.111× | 11.1% | $66.67 |
| 20% | 1.250× | 25.0% | $75.00 |
| 25% | 1.333× | 33.3% | $80.00 |
| 30% | 1.429× | 42.9% | $85.71 |
| 40% | 1.667× | 66.7% | $100.00 |
| 50% | 2.000× | 100.0% | $120.00 |
| 60% | 2.500× | 150.0% | $150.00 |
| 75% | 4.000× | 300.0% | $240.00 |
Divide cost by (1 − margin). Multiplying by (1 + margin) instead is the usual mistake.