Gross Margin Calculator

Gross margin is the share of revenue you keep after paying the direct cost of producing the goods or services you sold. The formula is (revenue minus cost of goods sold) divided by revenue, expressed as a percent. A SaaS business with $500,000 of revenue and $100,000 of COGS has $400,000 of gross profit and an 80% gross margin. It is the cleanest single number for product-level profitability, before any operating, interest, or tax costs are layered in.

Gross margin and markup measure the same gross profit dollars against different bases. Margin divides profit by revenue (selling price). Markup divides profit by cost. A product that costs $50 and sells for $100 has a $50 gross profit, which is a 50% margin (50 of 100 revenue) and a 100% markup (50 of 50 cost). The two numbers are never equal: a 50% markup is only a 33.33% margin, and a 100% markup is a 50% margin. Confusing them is the most common pricing mistake, and it always overstates profitability.

Gross margin only subtracts cost of goods sold (the direct cost of what you sold) from revenue. Operating margin also subtracts salaries, rent, marketing, R&D, and other operating expenses. Net margin subtracts everything down to interest and taxes, so it reflects the final share of revenue that becomes profit. A 70% gross margin SaaS company can easily have a 10% operating margin and a 5% net margin once payroll and tax are taken out. For the full P&L walk, use /profit-margin-calculator/.

Benchmarks vary by business model. Software-as-a-service typically posts 75% and up. General-merchandise retail runs 30 to 50%. Restaurants land around 60 to 70% on food and beverage after food and pour costs. Grocery is famously thin at 20 to 25% and survives on volume and inventory turns. Use these ranges as sanity checks, not targets; a 40% gross margin is great for a grocery chain and a red flag for a SaaS company. The calculator can show where your number sits inside the band for your industry.

Switch the mode to 'I know COGS and target margin' to back into the revenue you need from a known unit cost. If you produce a product for $30 and want a 60% gross margin, the calculator solves selling price = 30 divided by (1 minus 0.60) = $75 per unit. Or use 'I know revenue and target margin' to find the maximum COGS your supply chain can carry at a planned selling price. The sales-target check then reports the total revenue you would need to clear a given gross profit dollar amount at that margin, which is useful for quarterly bookings goals.