Gross Profit Margin Calculator Formula
Understand the math behind the gross profit margin calculator. Each variable explained with a worked example.
Formulas Used
Gross Profit
gross_profit = revenue - cogsGross Profit Margin
gross_margin = revenue > 0 ? ((revenue - cogs) / revenue) * 100 : 0COGS as % of Revenue
cogs_pct = revenue > 0 ? (cogs / revenue) * 100 : 0Variables
| Variable | Description | Default |
|---|---|---|
revenue | Revenue(USD) | 800000 |
cogs | Cost of Goods Sold (COGS)(USD) | 320000 |
How It Works
How to Calculate Gross Profit Margin
Formula
Gross Profit = Revenue - COGS Gross Profit Margin = (Gross Profit / Revenue) x 100
Gross profit margin strips away only the direct costs of production, leaving a clear picture of how efficiently you convert raw materials and labor into sellable products. It is the first profitability checkpoint: if gross margin is weak, no amount of overhead control will produce healthy net profits.
Worked Example
A company has $800,000 in revenue and $320,000 in cost of goods sold.
- 01Gross Profit = $800,000 - $320,000 = $480,000
- 02Gross Profit Margin = ($480,000 / $800,000) x 100 = 60%
- 03COGS as % of Revenue = ($320,000 / $800,000) x 100 = 40%
Frequently Asked Questions
What costs go into COGS?
COGS includes direct materials, direct labor, and manufacturing overhead directly tied to production. It does not include selling expenses, administrative costs, or interest payments.
What is a healthy gross margin?
Software/SaaS typically targets 70-90%. Professional services range from 50-70%. Manufacturing sits at 25-50%. Retail averages 25-50%. The wider your gross margin, the more room you have for operating expenses and profit.
Ready to run the numbers?
Open Gross Profit Margin Calculator