What is gross margin?
Gross margin is the percentage of revenue that remains after subtracting the cost of goods sold. To find it, subtract the cost of goods sold from revenue, divide by revenue, and multiply by 100.
Last reviewed .
How to calculate gross margin
Subtract the cost of goods sold from revenue, divide by revenue, then multiply by 100.
Percentages in this equation use numeric percent values: 40 means 40%.
Why gross margin matters to marketers
Gross margin limits how much you can spend to win a sale. If a product keeps 30% of its price after direct costs, at most 30 cents of each revenue dollar is left for shipping, fees, ads, salaries, and profit.
For break-even ROAS and a target CPA you can afford, subtract the other variable costs too and use contribution margin.
What counts as cost of goods sold
Cost of goods sold covers the direct costs of producing or buying what you sell, such as materials, manufacturing, and inventory costs. For service and software businesses, it often includes delivery and hosting costs.
Marketing and general overhead usually sit outside it. Accounting rules vary, so ask your finance team how they define it.
Gross margin versus gross profit
Gross profit is the amount in currency, and gross margin is that amount as a percentage of revenue. Using the example, $60,000 of gross profit on $100,000 of revenue is a 60% gross margin.
Disclaimer
This calculator is for informational purposes only, and we don't guarantee the accuracy of its results. You're responsible for verifying any results before relying on them. See our terms of use.
Common questions
How do you calculate gross margin?
Subtract the cost of goods sold from revenue, divide by revenue, and multiply by 100. For example, $100,000 of revenue with $40,000 of costs gives a 60% gross margin.
What is a good gross margin?
It varies widely by industry and business model. Compare yours with your own history and with companies that sell in a similar way.
What is the difference between gross margin and contribution margin?
Gross margin only subtracts the direct cost of goods sold. Contribution margin also subtracts other variable costs, such as shipping and payment fees, so it's usually lower.
Is gross margin the same as markup?
No. Margin is profit as a share of the selling price, while markup is profit as a share of the cost. The same product has a lower margin percentage than markup percentage.
Want help putting this to work?
Tell us where your marketing stands today, and we'll show you what to do first.