What is gross margin vs net margin?

Gross margin only subtracts direct costs (COGS) from revenue. Net margin subtracts all expenses including overhead, taxes, and interest. Gross margin measures production efficiency; net margin measures overall profitability.

What costs are included in COGS?

COGS includes direct costs: raw materials, direct labor, manufacturing overhead directly tied to production. It excludes selling expenses, administrative costs, and other operating expenses.

What is a good gross margin percentage?

Good gross margin varies by industry. Software: 75-95%, Retail: 25-45%, Manufacturing: 25-45%, Distribution: 15-30%. Compare to your specific industry and competitors.

Why is gross margin important?

Gross margin indicates how efficiently you produce goods before overhead. It shows whether your core business model is viable and how much is available to cover operating expenses and profit.

How can I improve gross margin?

Reduce COGS through better supplier negotiations, improved manufacturing efficiency, reduced waste, or value engineering. You can also increase prices if the market supports it.

What's the difference between gross margin and gross profit?

Gross profit is the dollar amount (Revenue - COGS). Gross margin is this amount expressed as a percentage of revenue. Both measure the same thing but gross margin allows easier comparison.

How does gross margin affect pricing decisions?

Your gross margin determines how much each sale contributes to covering overhead. If your overhead is 20% of revenue, you need at least 20% gross margin to break even before profit.

Can gross margin be negative?

Yes, if COGS exceeds revenue, you have negative gross margin—meaning you lose money on every sale before overhead. This is unsustainable and requires immediate pricing or cost changes.

How do I calculate gross margin for services?

For services, COGS includes direct labor costs and any direct materials. Revenue is your service fee. The formula remains the same: ((Revenue - Direct Costs) / Revenue) × 100.

What gross margin do distributors typically have?

Distributors typically operate at 15-30% gross margin. The lower end is for commodity products with high competition; the higher end is for value-added distribution with services included.

Gross Margin Calculator

Calculate your gross margin percentage from revenue and cost of goods sold. Understand your production profitability before overhead.

Enter Your Data

Enter revenue and COGS to calculate gross margin

Industry Benchmarks: Gross Margin

Gross margin indicates production efficiency before overhead. Distribution and manufacturing typically have lower gross margins but can still be profitable through volume.

Industry	Low	Average	High
Software/SaaS	75%	85%	95%
Manufacturing	25%	35%	45%
Wholesale Distribution	15%	22%	30%
Retail	25%	35%	45%
Food & Beverage	30%	40%	50%
Healthcare Products	50%	60%	70%

How to Use the Gross Margin Calculator

Step-by-Step Instructions

Enter your total revenue from sales
Enter your cost of goods sold (COGS) - direct production costs only
Click Calculate to see your gross margin percentage
Compare to industry benchmarks to evaluate performance

Formulas Used

Gross Margin Formula

Gross Margin = ((Revenue - COGS) / Revenue) × 100

Gross margin shows what percentage of revenue remains after direct production costs.

Gross Profit Formula

Gross Profit = Revenue - COGS

The dollar amount available to cover overhead and generate net profit.

Frequently Asked Questions: Gross Margin Calculator

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