The gross profit margin formula
Gross profit margin measures how much of each sales dollar remains after the direct cost of producing your goods or services. The formula is gross margin% = (revenue − cost of goods sold) ÷ revenue × 100. The top of the fraction, revenue minus COGS, is your gross profit. A higher margin means more money left over to cover overhead, marketing, and profit. It is the first of three profitability margins, sitting above net profit margin.
How to use this calculator
Enter your total revenue (sales) and your cost of goods sold — the direct costs of materials and labor to make what you sold. The tool returns the gross profit margin percentage and the dollar gross profit. COGS excludes overhead like rent and salaries that are not tied to production; those belong in net margin instead. Margin and markup are different views of the same sale, as the markup calculator shows.
Worked example
With $10,000 in revenue and $6,000 of COGS: gross profit is $4,000, and the margin is 4,000 ÷ 10,000 × 100 = 40%. Cutting production costs lifts the margin directly:
| Revenue | COGS | Gross margin |
|---|---|---|
| $10,000 | $7,000 | 30% |
| $10,000 | $6,000 | 40% |
| $10,000 | $4,000 | 60% |
These figures are an estimate for general information only and are not financial advice; consult a qualified professional before making money decisions. Per-unit economics are clearer in the contribution margin calculator.
Frequently asked questions
- How do I calculate gross profit margin?
- Subtract cost of goods sold from revenue, divide by revenue, and multiply by 100. For $10,000 revenue and $6,000 COGS, the margin is 40%.
- What is the gross margin on $10,000 revenue and $6,000 COGS?
- It is 40%: (10,000 − 6,000) ÷ 10,000 × 100, a gross profit of $4,000.
- What is the difference between gross and net margin?
- Gross margin subtracts only the direct cost of goods sold, while net margin subtracts all expenses including overhead, taxes, and interest. Net margin is always lower.
- What counts as cost of goods sold?
- COGS includes direct costs to produce what you sold — raw materials and direct labor. It excludes overhead like rent, salaries, and marketing not tied to production.
- What counts as a healthy gross margin?
- It depends entirely on the industry: grocery retail often runs near 25% while software can exceed 80%. Compare your margin with direct competitors and watch its direction over time rather than against a universal benchmark.