Gross Margin Calculator
Written by Thierno Sadou Diallo, formula verified per our methodology • Last checked on 10/11/2026
Gross margin is calculated with (revenue − cost of goods sold) ÷ revenue × 100. For €100,000 of revenue and €60,000 of cost of goods sold, the gross margin rate is 40%.
Explanation
Gross margin measures what's left of revenue after deducting only the direct cost of goods or services sold (the purchase price of merchandise for a retailer, the cost of raw materials and production labor for a manufacturer), before any other business expense. It differs clearly from our already-published net margin calculator, which additionally deducts ALL the company's other expenses (rent, administrative salaries, marketing, financial charges, taxes) to get the profit actually available: a company can thus show a comfortable gross margin while having a low or negative net margin, if its overhead costs are too high relative to that gross margin. This distinction makes gross margin particularly useful for assessing the intrinsic profitability of a product or business line, independent of the overhead cost structure of the company selling it: two companies selling an identical product at the same price can have an identical gross margin, but very different net margins depending on their size, organization, or fixed costs. The gross margin rate varies enormously by industry: it's generally low in highly competitive retail (a few percentage points to a few dozen), and markedly higher in services or software, where the direct cost of producing one more sale is often marginal.
Example: €100,000 revenue, €60,000 cost of goods sold
Inputs
Revenue: €100,000. Cost of goods or services sold: €60,000.
Calculation
Gross margin = 100,000 − 60,000 = €40,000. Gross margin rate = (40,000 ÷ 100,000) × 100 = 40%.
Result
This business generates a gross margin of €40,000, a 40% gross margin rate.
Frequently asked questions
Why is my gross margin comfortable but my net margin low?
This signals that the company's overhead costs (rent, administrative salaries, marketing, financial charges) weigh heavily relative to the gross margin generated by the sales activity itself: see our net margin calculator to precisely quantify this second level of profitability, after deducting all these expenses.
What exactly should be included in the cost of goods sold?
For a retailer, it's generally the purchase price of the merchandise resold, excluding the store's overhead costs. For a manufacturer, it typically includes raw materials and labor directly tied to production, but excludes administrative costs, marketing, or office rent, which fall under the overhead costs deducted later to get the net margin.
Is a 40% gross margin rate good or bad?
It depends entirely on the industry: a 40% rate would be considered very comfortable in food retail, where margins are often much lower due to intense price competition, but relatively modest in software publishing, where gross margin rates frequently exceed 70 to 80% because the marginal production cost of each additional sale is very low. Comparing this rate to other companies in the same industry, or to the business's own break-even point, is more meaningful than a universal benchmark.