What is gross margin and how is it calculated?

Gross margin (also called gross profit margin) is the percentage of revenue that remains after subtracting the direct cost of goods sold (COGS). The formula is: Gross Margin % = (Revenue - Cost) / Revenue x 100. For example, if revenue is $100 and COGS is $70, gross profit is $30 and gross margin is 30%. This means 30 cents of every revenue dollar is available to cover operating expenses and generate net profit. Common gross margin benchmarks by industry: • Software / SaaS: 70–85% (very low COGS) • Pharmaceuticals: 60–80% • Retail apparel: 40–60% • Grocery / supermarket: 20–30% • Manufacturing: 20–40% • Construction: 15–25% • Restaurants: 60–70% on food cost alone (but high operating expenses)

What is the difference between gross margin and net margin?

Gross margin deducts only the direct cost of goods sold (COGS) — materials, direct labour, and manufacturing overhead. Net margin deducts all costs: COGS plus operating expenses (rent, salaries, marketing, admin), plus interest and taxes. A business can have an excellent gross margin but a poor net margin if its operating expenses are very high. For example, a software company might have a 75% gross margin but only a 10% net margin after paying engineers, sales staff, and office costs. Key differences: • Gross margin = (Revenue - COGS) / Revenue x 100 • Operating margin = (Revenue - COGS - OpEx) / Revenue x 100 • Net margin = Net Profit / Revenue x 100 (after interest and tax) • Gross margin tells you about pricing and production efficiency • Net margin tells you about overall business profitability • A high gross margin with a low net margin signals high overhead costs • Investors typically look at all three — gross margin for unit economics, net margin for overall health

What is the difference between margin and markup?

Margin and markup both measure profitability but use different denominators. Margin divides profit by revenue (the selling price). Markup divides profit by cost. For the same transaction they always give different percentages — markup is always the higher number. This causes widespread confusion: if you target a 30% margin but apply 30% as a markup, you will consistently underprice every product. Side-by-side comparison (Revenue $100, Cost $70): • Gross profit: $30 • Margin: $30 / $100 = 30% (profit as share of revenue) • Markup: $30 / $70 = 42.86% (profit as share of cost) • To achieve 30% margin, you need 42.86% markup — NOT 30% markup • Conversion: Markup = Margin / (1 - Margin) • Conversion: Margin = Markup / (1 + Markup) • Rule: margin is always lower than markup for the same product

What is a good gross margin percentage?

What constitutes a good gross margin depends heavily on the industry, business model, and competitive environment. There is no universal benchmark — a 25% gross margin is excellent for a grocery chain but alarming for a software company. The most meaningful comparison is against direct competitors and industry averages. Industry gross margin benchmarks: • SaaS / software: 70–85% — low COGS since software is replicated at near-zero cost • Pharmaceuticals: 60–80% — high development cost amortised over many units • Consumer electronics: 30–50% — Apple achieves ~40%, most others lower • Retail (apparel, general): 40–60% — higher fashion = higher margin • E-commerce: 20–45% — depends on category and fulfilment costs • Grocery / food retail: 20–30% — high volume, thin margin business model • Restaurants: 60–75% on food cost, but overall after labour is much lower • Construction: 15–25% — material and labour intensive • A declining gross margin over time is a warning sign of pricing pressure or rising input costs

How do I use margin to set prices?

To set a price that achieves a target gross margin, use the formula: Revenue = Cost / (1 - Target Margin%). For example, if your cost is $70 and you want a 35% gross margin: Revenue = $70 / (1 - 0.35) = $70 / 0.65 = $107.69. This is the minimum price to achieve 35% gross margin. Pricing for margin is preferable to pricing by markup for businesses that think in terms of revenue targets, because margin is directly comparable to your income statement percentages. Practical pricing steps: • Start with your fully-loaded cost per unit (all direct costs included) • Determine your target gross margin based on industry benchmarks and overhead needs • Apply: Price = Cost / (1 - Target Margin%) • Check that the resulting price is competitive in your market • If price is too high, find ways to reduce cost rather than accepting a lower margin • If price is easily achievable, consider whether you are leaving money on the table • Always re-run this calculator whenever costs change — margin erosion is silent and cumulative

Percentage Margin Calculator — Gross Margin, Net Margin & Markup

Gross margin is the percentage of revenue that remains after subtracting the cost of goods sold. This Percentage Margin Calculator works in three modes: enter revenue and cost to find the margin; enter revenue and target margin to find the required cost; or enter cost and target margin to find the s...

MARGIN CALCULATOR

I KNOW…

Revenue

Cost

Operating Expenses — optional, for net margin

Rent, salaries, marketing — costs not included in COGS

GROSS MARGIN

30%

GROSS PROFIT

$30.00

REVENUE

$100.00

MARKUP

42.8571%

NET MARGIN

—

QUICK EXAMPLES

LIVE DIAGRAM

GROSS MARGIN

30%

GROSS PROFIT

$30.00

MARKUP

42.8571%

REVENUE COMPOSITION

COST

PROFIT

Cost: $70.00 (70.0%)

Profit: $30.00 (30.0%)

MARGIN vs MARKUP — ALWAYS DIFFERENT

Gross Margin (on revenue)30%

Markup (on cost)42.8571%

Margin 30% on revenue · Markup 42.8571% on cost · Markup is always higher.

REVENUE

$100.00

COST

$70.00

GROSS PROFIT

$30.00

NET PROFIT

Enter opex →

Live diagram · updates as you type

Created with❤️byeaglecalculator.com

MARGIN ↔ MARKUP CONVERSION TABLE

REVENUE: $100.00 · YOUR MARGIN: 30% · YOUR MARKUP: 42.8571%

MARGIN %	MARKUP %	COST (at $100.00 rev)	GROSS PROFIT
5%	5.26%	$95.00	$5.00
10%	11.11%	$90.00	$10.00
15%	17.65%	$85.00	$15.00
20%	25%	$80.00	$20.00
25%	33.33%	$75.00	$25.00
30% ←	42.86%	$70.00	$30.00
40%	66.67%	$60.00	$40.00
50%	100%	$50.00	$50.00
60%	150%	$40.00	$60.00
70%	233.33%	$30.00	$70.00

Margin % = profit ÷ revenue. Markup % = profit ÷ cost. Markup is always higher than margin for the same transaction.

HOW TO USE

1
Select your mode: Revenue + Cost (most common), Revenue + Margin % (to find the required cost), or Cost + Margin % (to find the selling price for a target margin).
2
Enter your two known values. Revenue is total sales. Cost is the direct cost of goods sold (COGS) — materials, direct labour, and manufacturing costs only.
3
Optionally enter operating expenses (rent, salaries, marketing) to see the net margin alongside gross margin.
4
The result box shows gross margin, gross profit, the equivalent markup percentage, and net margin if operating expenses are entered.
5
Review the Margin to Markup conversion table to see the correct markup for every common margin target. Your current margin is highlighted.

WORKED EXAMPLE

Example 1 (Revenue + Cost): Revenue $100, Cost $70. Gross profit = $30. Gross margin = $30/$100 = 30%. Markup = $30/$70 = 42.86%. With operating expenses $15: Net profit = $15, Net margin = 15%. Example 2 (Revenue + Margin): Revenue $200, target margin 40%. Cost = $200 x (1-0.40) = $120. Gross profit = $80. Example 3 (Cost + Margin): Cost $70, margin 30%. Revenue = $70 / (1-0.30) = $100. Gross profit = $30.

REFERENCE FORMULAS

FORMULA REFERENCE TABLE

NAME	FORMULA	DESCRIPTION
Gross Margin %	Margin% = (Revenue - Cost) / Revenue x 100	Profit as % of revenue — the universal profitability metric
Gross Profit	Gross Profit = Revenue - Cost	Absolute profit after deducting COGS only
Net Margin %	Net Margin% = (Gross Profit - OpEx) / Revenue x 100	Profit after COGS and operating expenses as % of revenue
Revenue (from cost+margin)	Revenue = Cost / (1 - Margin% / 100)	Find the selling price that achieves a target margin
Margin to Markup	Markup% = Margin% / (100 - Margin%) x 100	Convert target margin to the required markup
Markup to Margin	Margin% = Markup% / (100 + Markup%) x 100	Convert markup percentage to the equivalent margin

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Last updated: April 25, 2026 · Formula verified by EagleCalculator team · Eagle-eyed accuracy for every calculation.