Gross Margin Calculator
Calculate gross margin percentage for business profitability analysis
Calculate Gross Margin
Total sales revenue from products/services
Direct costs for producing/acquiring goods
Gross Margin Analysis
Calculation Breakdown
Formula: Gross Margin = (Revenue - COGS) / Revenue × 100
Simplified: Gross Margin = Gross Profit / Revenue × 100
Example: Revenue $1,000,000 - COGS $350,000 = $650,000 gross profit = 65% margin
Margin Analysis
Company Alpha Example
Financial Performance
Revenue: $1,000,000
Cost of Goods Sold: $350,000
Gross Profit: $650,000
Gross Margin: 65%
Calculation Steps
1. Determine Revenue: $1,000,000
2. Find COGS: $350,000
3. Calculate Gross Profit: $1,000,000 - $350,000 = $650,000
4. Calculate Gross Margin: $650,000 ÷ $1,000,000 = 65%
Industry Benchmarks
Excellent
Software, luxury goods
Very high profitability
Good
Technology, services
Healthy profitability
Average
Manufacturing, retail
Moderate profitability
Below Average
Grocery, commodities
Low profitability
Improvement Strategies
Optimize pricing strategies
Reduce cost of goods sold
Improve operational efficiency
Negotiate better supplier terms
Optimize inventory management
Focus on high-margin products
Understanding Gross Margin
What is Gross Margin?
Gross margin is a financial metric that reveals how effectively a business manages its direct costs in relation to the revenue it generates. It highlights the portion of sales revenue that remains after deducting costs directly associated with producing or purchasing goods.
Why is Gross Margin Important?
- •Measures operational efficiency and cost control
- •Helps evaluate pricing strategies
- •Indicates financial health and sustainability
- •Provides basis for covering operating expenses
Gross Margin Formula
Gross Margin = (Revenue - COGS) / Revenue × 100
Where: COGS = Cost of Goods Sold
Key Components
- Revenue: Total sales from products/services
- COGS: Direct costs for materials, labor, manufacturing
- Gross Profit: Revenue minus COGS
- Gross Margin: Gross profit as percentage of revenue
Tip: A healthy gross margin provides flexibility to cover operating expenses, invest in growth, and remain competitive in the market.