1. What is a Gross Margin Calculator?

Definition: This calculator determines the gross profit margin percentage, showing what portion of revenue remains after accounting for the cost of goods sold (COGS).

Purpose: It helps businesses analyze profitability and pricing strategies by measuring the efficiency of production and sales.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• Gross Margin — Profit margin percentage
• Revenue — Total income (USD)
• COGS — Cost of goods sold (USD)

Explanation: The formula calculates what percentage of revenue exceeds the direct costs of producing goods or services.

3. Importance of Gross Margin Calculation

Details: Gross margin is a key financial metric that indicates business health, pricing effectiveness, and production efficiency. Higher margins mean more funds are available for other expenses.

4. Using the Calculator

Tips: Enter revenue and COGS in USD (both must be positive numbers). Revenue must be greater than zero for valid calculation.

5. Frequently Asked Questions (FAQ)

Q1: What's a good gross margin percentage?
A: This varies by industry, but generally 15-20% is acceptable, 20-30% is good, and 30%+ is excellent.

Q2: Can gross margin be negative?
A: Yes, if COGS exceeds revenue, indicating you're selling products for less than they cost to make.

Q3: How is this different from net margin?
A: Gross margin only considers COGS, while net margin accounts for all expenses (operating costs, taxes, etc.).

Q4: Should I use gross or net profit margin?
A: Gross margin shows production efficiency, while net margin shows overall profitability. Both are important.

Q5: How can I improve my gross margin?
A: Either increase prices (raise revenue) or reduce production costs (lower COGS).