Gross Margin Calculator
Gross margin answers one question: of each revenue dollar, how much survives the direct cost of making the thing? Enter revenue and cost of goods sold — or flip it and price from a target margin.
Gross margin = (revenue − COGS) ÷ revenue. $100 revenue with $60 COGS is a 40% margin (and a 66.7% markup — the two are cousins, not twins).
- $100 revenue, $60 COGS40% margin
- Same numbers as markup66.7% (profit ÷ cost)
- Software gross margins70–90% typical
- Grocery retail20–30% typical
Margin is on price; markup is on cost — mixing them up misprices products.
Margin vs. markup — the table that settles it
| Gross margin | Equivalent markup | Price for $60 cost |
|---|---|---|
| 20% | 25% | $75.00 |
| 30% | 42.9% | $85.71 |
| 40% | 66.7% | $100.00 |
| 50% | 100% | $120.00 |
| 60% | 150% | $150.00 |
Pricing from a target margin uses price = cost ÷ (1 − margin). The classic error is multiplying cost by (1 + margin): a “40% margin” priced that way ($60 × 1.4 = $84) actually yields only 28.6%.
Frequently asked questions
How do I calculate gross margin?
(Revenue − COGS) ÷ Revenue × 100. It's the share of each sales dollar left after direct costs — before overhead, marketing, and tax.
What's the difference between gross margin and profit margin?
Gross margin subtracts only COGS. Net profit margin subtracts everything — overhead, payroll, interest, taxes. A 40% gross margin business might run a 5% net margin.
What's a good gross margin?
It's industry-relative: software runs 70–90%, restaurants ~60–70% on food (before labor), grocery 20–30%, distribution single digits. Compare within your industry, not across.
How do I price a product for a 40% margin?
Divide cost by 0.6: a $60 cost needs a $100 price. Dividing by (1 − margin) is the rule; multiplying by 1.4 undershoots.
Sources & methodology
Sources: NumberBench methodology.
Results update as you type and are general estimates, not financial advice.