Business Margin

Gross margin calculator

Total revenue

Cost of goods sold

Gross margin 40 %

(revenue − COGS) ÷ revenue

Gross profit 100,000

COGS as a share of revenue 60 %

Average markup 66.67 %

Revenue per unit of cost 1.6667×

Before operating costs, interest and tax

Gross margin is revenue minus cost of goods sold, divided by revenue. Revenue of 250,000 against COGS of 150,000 gives 100,000 gross profit and a 40% gross margin. Operating costs come out after this line.

How to calculate gross margin

1 Enter total revenue for the period, excluding tax.

2 Enter cost of goods sold — materials, direct labour and inbound freight.

3 Read the gross margin percentage.

4 Track it period on period; the trend matters more than the level.

What belongs in cost of goods sold is the judgement call that makes gross margin comparable or useless. Direct materials and the labour that touches the product belong there; rent, salaries of people who do not make the product, and marketing do not. Inbound freight is usually included and outbound is usually not. The important thing is consistency: a margin that improves because you reclassified freight is not an improvement, and it will be the first thing a lender or acquirer checks.

Questions

What is gross margin? −

Revenue minus cost of goods sold, expressed as a percentage of revenue. It is the money left to cover everything else.

What goes in cost of goods sold? +

Gross margin or gross profit? +

Why is my gross margin falling? +

Is gross margin the same as net margin? +

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