Free calculator
Gross margin calculator
Enter a selling price and a cost to get gross profit, gross margin and markup, or enter a cost and the margin you want to find the price to charge. Works for one product or a whole period's revenue.
Sale
For one unit, or total revenue for a period.
Cost of goods sold: what you paid to buy or make it.
The formulas
A product that costs $75 and sells for $125 earns $50 of gross profit. That’s a 40% gross margin (50 ÷ 125) and a 66.67% markup (50 ÷ 75). The same arithmetic works on an income statement: divide gross profit for the period by revenue for the period.
Price from a target margin
To earn a 50% margin on a $75 cost, charge $150.00. Marking the cost up by 50% instead gives $112.50, a 33.33% margin: a gap that is easy to miss when prices are set as a markup on cost.
Margin to markup
| Gross margin | Markup on cost |
|---|---|
| 10% | 11.11% |
| 20% | 25% |
| 25% | 33.33% |
| 30% | 42.86% |
| 33.33% | 49.99% |
| 40% | 66.67% |
| 50% | 100% |
| 60% | 150% |
Gross margin is the first of several profitability ratios. The financial ratios cheat sheet lists the rest, and the break-even calculator uses the closely related contribution margin to find the sales that cover fixed costs.
Gross margin: questions
- What's the difference between gross margin and markup?
- Both start from the same gross profit, but divide by different numbers. Margin divides by the selling price; markup divides by the cost. A product that costs $75 and sells for $125 has a 40% margin and a 66.67% markup. Margin can never reach 100%; markup can be any size.
- How do I price a product for a target margin?
- Divide the cost by one minus the target margin. For a 50% margin on a $75 cost: $75 ÷ (1 − 0.50) = $150.00. Adding 50% to the cost gives $112.50 instead, which is only a 33.33% margin.
- Is gross margin the same as gross profit?
- Gross profit is an amount: revenue minus cost of goods sold. Gross margin is that amount as a percentage of revenue, which makes periods and companies of different size comparable.
- What costs go into cost of goods sold?
- The direct costs of the goods or services sold in the period: materials, direct labor and the overhead of making or buying them. Selling, general and administrative expenses such as marketing, rent for offices and salaries outside production sit below gross profit.
- What is a good gross margin?
- It depends on the industry and the business model: a software company and a grocer run on very different margins. Compare your margin with your own history and with companies that sell the same things, and watch the trend. A falling margin means costs are rising faster than prices.