Margin Calculator
Enter any two values above to calculate the rest.
What Is Gross Margin?
Gross margin is the percentage of revenue remaining after subtracting the cost of goods sold (COGS). It is the most widely used profitability metric in US business finance, appearing in every income statement from Main Street retailers to Fortune 500 filings.
Formula: Gross Margin % = (Revenue − COGS) ÷ Revenue × 100
Example: A US e-commerce business sources a product for $40 and sells it for $100. Gross margin = ($100 − $40) ÷ $100 × 100 = 60%. Sixty cents of every dollar in revenue is available to cover operating expenses and generate profit.
Gross Margin vs Markup — Know the Difference
Confusing markup with gross margin is one of the most costly pricing mistakes in American small business. They look similar but use a different base number.
| Metric | Formula | Example (cost $40, sell $100) |
|---|---|---|
| Gross Margin | (Revenue − Cost) ÷ Revenue | 60% |
| Markup | (Revenue − Cost) ÷ Cost | 150% |
A 100% markup doubles your cost — but that only gives you a 50% gross margin. Retail buyers typically think in markup; CFOs and accountants report gross margin. Make sure everyone on your team is speaking the same language.
Net Margin
Net margin — net income divided by revenue — is the bottom-line percentage after all expenses: COGS, operating expenses, interest, and federal and state income taxes. It is what shareholders, investors, and lenders ultimately care about.
Formula: Net Margin % = Net Income ÷ Revenue × 100
S&P 500 companies average around 11–13% net margin, but this varies enormously by sector. A grocery chain at 2% and a software company at 25% can both be healthy businesses.
Operating Margin (EBIT Margin)
Operating margin strips out interest and taxes to show pure operational efficiency. It is the standard metric used in US business valuations, M&A due diligence, and bank lending covenants.
Formula: Operating Margin % = EBIT ÷ Revenue × 100
US Industry Gross Margin Benchmarks
| Sector | Typical Gross Margin |
|---|---|
| Grocery / food retail | 25–35% |
| Apparel retail | 45–60% |
| Restaurants | 60–75% |
| SaaS / software | 70–85% |
| Professional services | 50–70% |
| Manufacturing | 25–40% |
| Construction | 15–25% |
| Healthcare services | 30–50% |
Step-by-Step: Setting a Price with a Target Gross Margin
- Know your landed cost — e.g. $35 per unit (product + shipping + import duties).
- Set your target gross margin — e.g. 65%.
- Calculate selling price: $35 ÷ (1 − 0.65) = $100.
- Verify: ($100 − $35) ÷ $100 = 65% ✓
- If applicable, add sales tax on top for the consumer-facing price (sales tax varies by state — it is not part of your revenue).
Frequently Asked Questions
What is a good gross margin for a US small business?
It depends on your industry. Use the benchmarks table above as a baseline. The key test: is your gross margin high enough to cover all fixed costs (rent, salaries, insurance, software) and still leave a net profit? If not, your pricing or cost structure needs adjustment.
How do I calculate gross margin in Excel?
Put revenue in A1, cost in B1. In C1 enter =(A1-B1)/A1 and format as percentage. For a reverse calculation — finding the price that achieves a target margin — use =B1/(1-target_margin).
Does sales tax affect my gross margin calculation?
No — sales tax collected is passed directly to the state. It never forms part of your revenue. Always calculate margin on the pre-tax selling price. This calculator does not include sales tax in the margin calculation.
What is the difference between gross profit and gross margin?
Gross profit is a dollar amount (Revenue minus COGS). Gross margin is that same figure expressed as a percentage of revenue. Gross margin is the more useful comparison tool across time periods or against competitors.
What gross margin do I need to be profitable?
Calculate your total fixed monthly costs (rent, salaries, utilities, software, insurance). Divide that by your expected monthly revenue. The result is your breakeven gross margin percentage — you need to exceed it to make a net profit.
How is gross margin used in business valuations?
In US M&A and VC investing, gross margin is a key signal of business quality. High gross margin businesses command higher revenue multiples because more of each dollar of growth flows through to profit. A SaaS business at 80% gross margin scales very differently than a services business at 30%.
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