Gross Margin Calculator
Calculate gross profit, gross margin percentage, and the equivalent markup from revenue and cost of goods sold (COGS).
How to use this tool
- Enter your total revenue for the period or product.
- Enter your cost of goods sold (direct costs only).
- Read your gross profit, gross margin percentage, and equivalent markup.
Find your gross profit and margin in seconds. Enter revenue and cost of goods sold to get gross profit, gross margin percentage, and the equivalent markup on cost.
Formula
Gross profit = Revenue − COGS
Gross margin = Gross profit ÷ Revenue × 100%
Equivalent markup on cost = Gross profit ÷ COGS × 100%
Margin and markup describe the same profit from different bases: margin is a share of price, markup is a share of cost. A 40% margin equals a 66.67% markup.
How it works
Gross margin measures how much of each revenue dollar survives after the direct cost of producing or delivering what you sold (cost of goods sold, or COGS). Gross profit is revenue minus COGS; gross margin expresses that profit as a percentage of revenue. It is the cleanest read on product-level profitability because it strips out overhead, sales, and other operating costs that sit further down the income statement.
The key judgement call is what goes into COGS. For a physical product it is materials, direct labour, and freight; for software it is typically hosting, support, and payment processing — but not R&D or sales. Keep that definition consistent so margins are comparable over time. This tool also reports the equivalent markup on cost, which is the same profit divided by COGS instead of revenue; the two are easy to confuse, and a healthy-sounding markup can correspond to a thinner margin than expected. A 50% markup, for instance, is only a 33.3% margin.
Reviewed by the AbraCalc Business Desk. Educational estimate only, not accounting advice; classify costs the way your reporting standards require.
Worked example
$10,000 revenue, $6,000 COGS
- Gross profit = 10,000 − 6,000 = 4,000.
- Gross margin = 4,000 ÷ 10,000 = 40.00%.
- Markup on cost = 4,000 ÷ 6,000 = 66.67%.
Gross margin = 40.00%, gross profit = $4,000.00
Margin vs equivalent markup
| Gross margin | Equivalent markup on cost |
|---|---|
| 10% | 11.11% |
| 20% | 25.00% |
| 25% | 33.33% |
| 33.33% | 50.00% |
| 40% | 66.67% |
| 50% | 100.00% |
| 75% | 300.00% |
Key terms
- Gross profit
- Revenue minus the cost of goods sold; profit before operating expenses.
- Gross margin
- Gross profit as a percentage of revenue.
- COGS
- Cost of goods sold — the direct costs of producing or delivering what you sold.
- Markup
- Profit as a percentage of cost rather than of price; always higher than the corresponding margin.
Frequently asked questions
- What is the difference between margin and markup?
- Margin is profit as a share of the selling price; markup is the same profit as a share of cost. Markup is always the larger number — a 40% margin is a 66.67% markup, and a 50% markup is only a 33.3% margin.
- What belongs in COGS?
- Only direct costs of producing or delivering the goods or service: materials, direct labour, and freight for products; hosting, support, and payment fees for software. Overhead, marketing, and R&D are operating expenses, not COGS.
- What is a good gross margin?
- It varies widely by industry. Retail and grocery run thin margins; software often exceeds 70–80%. Compare against peers in your sector and track the trend over time rather than chasing a universal number.