Gross Margin Calculator
Calculate the gross margin of a product or service using our online calculator. By inputting the revenue and the cost of goods sold (COGS), you can determine the gross margin percentage or amount.
Margin Formulas
The margin calculator uses the following formulas:
Gross Margin Percentage = ((Selling Price − Cost Price) / Selling Price) × 100
Mark Up Percentage = (Selling Price − Cost Price) / Cost Price × 100
Gross Profit per Unit = Selling Price − Cost Price
Total Gross Profit = Number of Units × Gross Profit Per Unit
What Can Margin Calculations Be Used For?
Margin calculations are useful when it comes to calculating the profit earned from sales. The margin is the difference between the costs and the sale price of products.
What is the Cost Price?
Your cost prices will vary. Don't make the mistake of setting the price of your product as the cost of the product because this will not include the manufacturing costs such as staffing costs, machine costs, and anything else that contributed to putting together your product. If you are a larger company, it can sometimes be more complicated to calculate your true operational costs. Large businesses usually use a baseline margin and work from a set margin. For example, if they work off the knowledge of a 20% margin, this means they are making an approximate 8% profit after deducting the operational costs. Small companies have more specific margins, whereas larger companies will estimate.
What is the Selling Price?
The selling price of a product is the price that is paid by the buyers of your product. In order to make a profit, your selling price will always have to be above the cost price. Although sometimes, large companies will sell at a price lower than the cost price. This is mostly done in supermarkets. This makes the profit margin negative and results in financial losses. This is done from a marketing standpoint in order to attract more customers to a certain product, and can sometimes be an effective sales technique.
What is the Number of Units?
The number of units is simply the amount of items that you have sold. If you sell one banana, then that single banana is a unit. If you sell a bag of bananas, then that bag of bananas is a unit.
What is the 'Mark Up' Percentage?
The mark up percentage is the difference between the selling price and the cost price, expressed as a percentage. If the mark up percentage is 100%, then the price has been doubled.
What is the Gross Profit per unit?
The Gross Profit per unit is the profit value that has been made on either a single item or a single use of your service.
What is the Total Gross Profit?
The Total Gross Profit is the total profit that is made after all your units have been sold.
Gross Margin Example
| Product/Company | Revenue | Cost of Goods Sold | Gross Margin |
|---|---|---|---|
| Product A | $500,000 | $300,000 | 40% |
| Product B | $1,000,000 | $700,000 | 30% |
| Product C | $2,000,000 | $1,200,000 | 40% |
In this example, we have three different products or companies with their respective revenue and cost of goods sold. We also calculate the gross margin for each product or company.
To calculate the gross margin, you can use the formula:
Gross Margin = (Revenue - Cost of Goods Sold) / Revenue * 100
For instance, for Product A with a revenue of $500,000 and cost of goods sold of $300,000, the gross margin would be 40%.
Similarly, using the same formula, you can calculate the gross margins for Product B and Product C based on their respective revenue and cost of goods sold mentioned in the table.
The gross margin is a financial metric that measures the profitability of a company's core operations by determining how much of each dollar of revenue remains after deducting the direct costs associated with producing or delivering the product or service. It provides insights into a company's pricing strategy, cost management, and overall efficiency. Comparing the gross margins of different products or companies can help assess their relative profitability and competitiveness in the market.
