Published 2025-10-27 · Last updated 2025-12-09 · Reviewed by Valzura Editorial Team
Gross Margin Calculator
Measure how efficiently you turn production costs into gross profit.
Gross margin is the percentage of revenue left after subtracting the cost of goods sold, the direct costs of producing or delivering what you sell. The formula is gross profit divided by revenue, times 100, where gross profit equals revenue minus cost of goods sold. Gross margin isolates production and pricing efficiency before overhead, interest, and taxes enter the picture, making it the cleanest read on the unit economics of what you sell.
Total sales for the period.
Direct material, labor, and fulfillment costs.
Enter your revenue to calculate gross margin.
The gross margin formula
Gross margin measures how efficiently you convert the direct costs of production into gross profit, before any overhead, interest, or taxes. It is the cleanest read on the unit economics of what you sell. Because it sits at the top of the income statement, it sets the ceiling for every profit figure beneath it. See the full definition and worked examples in the gross margin glossary entry.
What belongs in cost of goods sold
Cost of goods sold captures direct costs only: materials, direct labor, and the manufacturing or fulfillment costs tied to producing what you sell. Rent, administrative salaries, marketing, interest, and taxes are not part of it. Misclassifying overhead as cost of goods sold understates gross margin and distorts every downstream comparison.
Gross margin, markup, and value
Gross margin and markup describe the same profit from two angles, so it helps to check both when you price. If you set prices from cost, run the numbers through the markup calculator to confirm the margin you actually earn. Because small gross margin gains flow straight to the bottom line, they have an outsized effect on value, a point our guide to increasing business value expands on. Turn your margins into a valuation with the free calculator.
Frequently Asked Questions
What is a good gross margin?
A gross margin above 50 percent is strong for many businesses, while 20 to 40 percent is common in retail and manufacturing and software often exceeds 70 percent. Because cost structures differ so much by industry, compare your gross margin to sector peers rather than a single target.
What is the difference between gross margin and gross profit?
Gross profit is a dollar figure, revenue minus cost of goods sold. Gross margin expresses that same profit as a percentage of revenue. Gross profit tells you the amount; gross margin tells you the efficiency and lets you compare businesses of different sizes.
What counts as cost of goods sold?
Cost of goods sold includes the direct costs of producing your product or delivering your service: materials, direct labor, and manufacturing or fulfillment costs. It excludes overhead such as rent, administrative salaries, marketing, interest, and taxes, which belong to operating and net profit calculations.
How do you improve gross margin?
You raise gross margin by increasing prices, lowering direct costs through better sourcing or efficiency, or shifting your sales mix toward higher-margin products. Small gross margin gains flow straight down to operating and net profit, so they have an outsized effect on value.
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What Is Your Business Worth?
Gross margin sets the ceiling on every profit figure below it, and profitability drives valuation. See yours.
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