Gross Margin

Gross margin % = (Revenue − COGS) / Revenue. Profit before operating expenses.

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How to use this calculator

  • Enter revenue + COGS.

About this calculator

Gross margin (GM) = (revenue − cost of goods sold) / revenue. Excludes operating expenses (sales, marketing, R&D). Industry benchmarks: SaaS 70-90%, software 60-80%, manufacturing 30-50%, retail 20-40%, grocery 1-5%. High GM = scalable + flexibility for OpEx investment. Low GM = volume game (Walmart sells huge quantities at razor-thin margins to make absolute dollar profits).

Frequently asked

COGS includes what?+
Direct costs: raw materials, manufacturing labor, payment processor fees, hosting (for SaaS). Doesn't include sales, marketing, R&D.
Why does SaaS have high GM?+
Software is "free" to copy — main cost is hosting + support. Manufacturing requires raw materials each unit.
Operating margin vs. gross?+
Operating: after OpEx (S&M, R&D, G&A). Net: after taxes + interest. GM is just first layer.
Negative gross margin?+
Selling below cost. Sometimes intentional (loss leaders, Costco hot dogs) but not sustainable as primary strategy.
Industry comparison?+
GAAP COGS rules vary (especially software companies including server costs vs. not). Compare apples to apples within industry.

Related calculators

Contribution Margin
CM = Revenue − Variable Costs. CM ratio = CM / Revenue.
Markup vs Margin Calculator
Markup % = (price − cost) / cost. Margin % = (price − cost) / price. Common confusion.
Break-Even Units
Units = Fixed Costs / (Price − Variable Cost per unit).
Customer Lifetime Value (LTV)
LTV = ARPU × gross margin × lifetime. Foundational SaaS unit economics.
CAC Payback Period
Months = CAC / (ARPU × gross margin). Time to recover acquisition cost.
Churn Rate Calculator
Monthly churn = customers lost / start customers. Annualized: 1 − (1−monthly)^12.

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