Gross Profit Margin Calculator
Gross profit margin is one of the most important metrics on an income statement. It shows what percentage of revenue is left after paying for the direct cost of producing or procuring your goods, before any operating expenses are deducted. A high gross margin means you have more money available to cover overhead, fund growth, and generate net profit. Enter your total revenue and cost of goods sold (COGS) to instantly see both your gross profit in dollars and your gross margin as a percentage.
Gross profit margin formula
Gross Profit = Revenue - COGS
Gross Profit Margin = (Revenue - COGS) / Revenue * 100
Example: Revenue of $500,000, COGS of $300,000. Gross Profit = $200,000. Gross Margin = $200,000 / $500,000 = 40.00%.
Why gross margin matters
- Investors and lenders use gross margin to assess pricing power and production efficiency.
- Declining gross margin over time may signal rising input costs or pricing pressure from competitors.
- Compare gross margin to your industry peers to benchmark your performance.
- A high gross margin leaves more room to invest in marketing, research, and talent without incurring a net loss.
- Gross margin is distinct from markup: a 40% gross margin equals a 66.7% markup on cost.
Frequently asked questions
What is gross profit margin?
Gross profit margin is the percentage of revenue remaining after subtracting the cost of goods sold (COGS). It measures how efficiently a company produces or sources its products before accounting for operating expenses.
What is included in cost of goods sold (COGS)?
COGS includes the direct costs of producing or purchasing the goods sold during a period: raw materials, direct labour, and manufacturing overhead. It excludes selling, general, and administrative expenses.
What is a good gross profit margin?
A healthy gross margin varies widely by industry. Software companies may have margins above 70%, while grocery retailers may have margins of 20-30%. Compare your margin to industry benchmarks and track it over time to spot trends.
How does gross margin differ from net margin?
Gross margin subtracts only COGS from revenue. Net margin subtracts all expenses, including operating expenses, interest, and taxes. Gross margin measures production efficiency; net margin measures overall profitability.
How can I improve my gross profit margin?
You can improve gross margin by increasing selling prices, reducing COGS through supplier negotiation or process efficiency, shifting to higher-margin products, or reducing waste and rework in production.
Official sources
- IRS Publication 334: Tax Guide for Small Business.
- FASB Accounting Standards Codification: ASC Topic 606 (Revenue Recognition).
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.