Gross Profit Margin Calculator

Enter your revenue and cost of goods sold (COGS) to calculate gross profit and gross profit margin.

Gross Profit Margin Calculator

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Revenue ($)

Cost of Goods Sold (COGS) ($)

Gross profit	$400,000.00
Gross profit margin	40.0%

Gross margin measures profitability before operating expenses (rent, salaries, marketing, etc.) - it's the first, but not the only, profitability checkpoint.

The formula

Gross profit = Revenue - Cost of Goods Sold (COGS) Gross profit margin = Gross profit / Revenue

Example

$1,000,000 revenue with $600,000 in COGS: $400,000 gross profit, a gross profit margin of 40% - meaning 40 cents of every revenue dollar remains after covering the direct cost of producing what was sold.

Step-by-step guide

Find total revenue for the period you're analyzing.
Find Cost of Goods Sold - the direct costs of producing what was sold (materials, direct labor, manufacturing overhead), NOT operating expenses like rent, marketing, or administrative salaries.
Compare your margin to industry norms - "good" gross margin varies enormously by industry, from thin single digits in grocery retail to 70-90%+ in software.

Why gross margin varies so dramatically by industry

Gross margin reflects the fundamental economics of how a business delivers its product, not just how well it's managed. A software company selling a product with near-zero marginal cost to serve each additional customer can post gross margins above 80%, since there's minimal direct "cost of goods" once the product is built. A grocery store, by contrast, might see gross margins in the 20-30% range, since physical goods carry real, substantial acquisition costs relative to their sale price. This is why comparing gross margin against a DIFFERENT industry's benchmark is almost always misleading - the right comparison is against similar businesses in the same space.

Common mistakes

Including operating expenses (rent, marketing, admin salaries) in COGS - these belong further down the income statement and affect operating margin, not gross margin.

Comparing gross margin across unrelated industries - a "low" margin in one sector might be perfectly healthy or even excellent for that specific type of business model.

Frequently asked questions

What's the difference between gross margin and net margin?

Gross margin only subtracts direct production costs (COGS). Net margin goes much further, subtracting ALL expenses - operating costs, interest, taxes - to arrive at the percentage of revenue that becomes actual bottom-line profit.

Should shipping and payment processing fees be included in COGS?

This varies by company and industry convention - some businesses include direct fulfillment costs like shipping and payment processing in COGS since they're directly tied to each sale, while others classify them as operating expenses. Consistency matters more than which convention you choose.

Why might a company with high gross margin still be unprofitable overall?

A strong gross margin only means the core product economics work - heavy spending on marketing, R&D, or administrative overhead below the gross profit line can still result in a net loss, which is common among fast-growing companies prioritizing expansion over near-term profitability.

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