Profitability & pricing

Gross profit and gross margin calculator

Gross margin is the share of revenue left after the direct cost of delivering it. It sets the ceiling on every other margin in the business, so it is the first line most acquirers examine.

Inputs

Result

Gross margin

45%

Gross profit
USD 540,000
COGS ratio
55%
Markup on cost
81.82%
Gross profit per 100 of revenue
USD 45
  • Gross margin sets the ceiling for EBITDA margin — overheads can only reduce it.

How to use this calculator

  1. 1Enter revenue for the period, net of refunds and discounts.
  2. 2Enter the direct cost of delivering that revenue.
  3. 3Compare the resulting margin with prior periods and with peers in your industry.

Gross margin vs net margin

Gross margin = (revenue − cost of goods sold) / revenue. It excludes overheads, interest and tax, so it isolates delivery economics from how the business is run or financed.

Two companies with identical net margins can be worth very different multiples: the one with a higher gross margin has more operating leverage, because each new sale contributes more toward fixed cost recovery.

What belongs in cost of goods sold

Include materials, inbound freight, direct production labour, subcontractors, merchant and platform fees, and hosting attributable to delivery. Exclude administration, marketing, rent and owner salaries not involved in production.

Consistency matters more than perfection. If you move a cost between COGS and overhead, restate prior periods so trends stay comparable.

Call this tool from the API

Every calculator on this site is also an endpoint. Get a free key from the developer page and call it from your product, spreadsheet or AI agent.

curl -X POST https://utopiavalue.co/api/v1/tools/gross-margin-calculator \
  -H "Authorization: Bearer $UTOPIA_API_KEY" \
  -H "Content-Type: application/json" \
  -d '{"revenue":1200000,"cogs":660000,"currency":"USD"}'

Frequently asked questions

What is a good gross margin?

Software typically runs 70-85%, professional services 40-60%, distribution and retail 20-40%, and construction or contracting 15-30%. Judge your figure against your industry, not across industries.

Why does my margin move month to month?

Common causes are unrecorded stock movement, timing differences between purchase and sale, mix shift between products, and discounting that is posted to revenue rather than to a contra-revenue account.

Does gross margin affect business value?

Yes, indirectly and strongly. Higher, stable gross margins support higher earnings multiples because they make forecast profit more resilient to volume swings.