Gross margin calculator: what's left of each sales dollar
Edited by Moe Ameen · Published
Gross margin is revenue minus cost of goods sold, divided by revenue, shown as a percentage. A business with $500,000 of sales and $310,000 of cost of goods sold has a gross margin of 38%. What's left pays rent, overhead, interest and loan payments. The SBA's ratios guide says a higher margin makes a business more attractive to funders, and the right number depends heavily on the industry.
Key takeaways
- Gross margin = (revenue − cost of goods sold) ÷ revenue × 100.
- Cost of goods sold is the direct cost of what you sell, such as materials and direct labor.
- Gross profit is the dollar figure. Gross margin is the same thing as a percentage.
- Service businesses tend to run higher margins than manufacturers, Investopedia says, because their COGS is smaller.
- To price for a target margin, divide unit cost by (1 − the margin).
How do you calculate gross margin?
Subtract cost of goods sold from revenue, divide by revenue and multiply by 100. $190,000 of gross profit on $500,000 of sales is 38%.
Investopedia, CFI and the SBA's ratios guide all give the same formula: (revenue − cost of goods sold) ÷ revenue [1][2][3]. Revenue here is net sales, after discounts and returns [1]. Cost of goods sold covers the direct costs of producing what you sell, including direct labor and materials [1].
| Example | Revenue | Cost of goods sold | Gross margin |
|---|---|---|---|
| Our example | $500,000 | $310,000 | 190,000 ÷ 500,000 = 38.0% |
| Investopedia [1] | $200,000 | $100,000 | 100,000 ÷ 200,000 = 50.0% |
| CFI [2] | 102,007 | 39,023 | 62,984 ÷ 102,007 = 61.7% |
Any period works, a month, a quarter or a year, as long as revenue and cost of goods sold cover the same one.
What's the difference between gross margin, gross profit and net margin?
Gross profit is revenue minus COGS in dollars. Gross margin is that as a percentage. Net margin subtracts every expense, not just COGS.
Investopedia notes that people use gross margin and gross profit interchangeably, though one is a percentage and the other a dollar amount [1]. Net margin goes further. It takes out the costs gross margin ignores, such as distribution, sales wages, other operating expenses and taxes [1]. Investopedia says gross margin helps a company judge how profitable its production is, and net margin how profitable the whole business is [1].
What is a good gross margin?
It depends on the industry. Investopedia says service businesses run higher margins than manufacturers, which carry bigger COGS.
Investopedia doesn't give a single target. Service businesses tend to have higher gross margins because they have little cost of goods sold, and manufacturers lower ones because theirs is large [1]. CFI warns that a low ratio doesn't automatically mean poor performance and says to compare within the same industry [2].
| Industry | Benchmark |
|---|---|
| Vegetable farming | 60% to 65% |
| Mining | 25% to 35% |
Why does gross margin matter when you apply for funding?
Gross profit is the money left to pay overhead, interest and debt. The SBA's guide says a higher margin makes you more attractive to funders.
Once cost of goods sold is paid, what's left goes to debts, general and administrative costs and interest [1][2]. The SBA's ratios guide says that the higher the percentage, the more profit you're making and the more potentially attractive you are to funders [3]. A thin margin leaves less room for a loan payment, which shows up in your DSCR. For the statements lenders ask for, see what lenders check.
How can you raise your gross margin?
Lower the direct cost of what you sell or raise prices. Investopedia lists cutting labor costs, cheaper suppliers and price increases.
When gross margin falls, Investopedia says, a company might cut labor costs, find cheaper material suppliers or raise prices [1]. CFI adds a caution about price increases: they have to stay competitive or customers may leave [2].
To find the price a target margin needs, rearrange the formula: price = unit cost ÷ (1 − target margin). A product that costs $60 needs a $100 price for a 40% margin, since (100 − 60) ÷ 100 = 40%. That's our arithmetic. Margin also says nothing about cash in the bank, so check your current ratio and quick ratio as well.
Glisten tool
Gross margin calculator
Glisten tool · Gross margin calculator
— gross margin
Enter revenue above zero and your cost of goods sold for the same period.
Gross margin varies a lot by industry, so compare yours with businesses like yours. It runs in your browser, and nothing you type is sent anywhere or saved.
We checked the calculator against the examples on this page. $500,000 of revenue and $310,000 of cost of goods sold gives 38.0%. Investopedia's $200,000 and $100,000 give 50.0% [1], and CFI's 102,007 and 39,023 give 61.7% [2]. A $60 unit cost at a 40% target gives a $100.00 price.
Is this right for you?
Best for
- Checking what share of each sale is left after the direct cost of making or buying it.
- Setting a price that hits a margin you've picked.
Not ideal for
- Judging overall profit. Net margin subtracts every expense, not just cost of goods sold.
- Comparing businesses in different industries. Margins vary too much between them.
Frequently asked questions
Is gross margin the same as gross profit margin?
Yes. They're two names for the same percentage [1].
What does a 35% gross margin mean?
The business keeps $0.35 of each $1 of revenue after paying the cost of goods sold [1].
What goes into cost of goods sold?
The direct costs of producing what you sell, including direct labor and materials [1]. Rent, sales wages and other overhead come out later, in net margin.
Can gross margin be negative?
Yes, if cost of goods sold is higher than revenue. The formula still works, and every sale loses money before any other expense is paid.
Is the calculator private?
Yes. It runs in your browser, and nothing you type is sent anywhere or saved.
How we know this
On November 2, 2026 we read Investopedia's and CFI's gross margin pages, the SBA's financial ratios learning guide and the Alaska SBDC's ratio list. The worked examples and the target-price formula are our own arithmetic, and the calculator reproduces them.
- Gross margin: definition, example, formula, and how to calculate, Investopedia. Checked November 2, 2026.
- Gross margin ratio: how to calculate gross margin ratio, Corporate Finance Institute. Checked November 2, 2026.
- Your business financial strategy: calculate and analyze your financial ratios, SBA (Ascent). Checked November 2, 2026.
- The top 10 financial ratios for business owners, Alaska Small Business Development Center. Checked November 2, 2026.