About

Gross Margin is arguably the most critical metric for pricing strategy. It represents the percentage of total sales revenue that a company retains after incurring the direct costs associated with producing the goods or services sold. A common pitfall for entrepreneurs is confusing Gross Margin with Markup. While they use the same inputs, they tell very different stories.

Markup is the percentage added to the cost to reach the selling price. Margin is the percentage of the selling price that is profit. For example, if you buy a widget for $100 and sell it for $150, your Markup is 50%, but your Margin is only 33.3%. This calculator computes both simultaneously to prevent pricing errors that could erode profitability.

Formulas

The calculator derives the metrics using these standard formulas:

Gross Margin % = (Revenue − COGS)Revenue × 100

Markup % = (Revenue − COGS)COGS × 100

Where COGS is the Cost of Goods Sold.

Reference Data

Industry	Typical Gross Margin Range	Notes
SaaS (Software)	75% - 85%	Low COGS (hosting/support), high scalability
Retail (Apparel)	45% - 55%	Inventory heavy, subject to markdowns
Restaurants	20% - 30%	High labor and food spoilage costs
Manufacturing	25% - 35%	Raw materials and factory overhead driven
Consulting/Services	40% - 60%	Main cost is billable labor hours
Electronics	15% - 25%	High competition, rapid depreciation
Construction	15% - 20%	Project-based, high material variance
Grocery	1% - 3%	Volume-based model, razor-thin margins

Frequently Asked Questions

Theoretically, yes, if the Cost of Goods Sold (COGS) is zero. However, in reality, almost every product has some direct cost (payment processing fees, server costs, etc.), so a true 100% margin is extremely rare.

This is a mathematical certainty. Markup compares profit to Cost (a smaller number), while Margin compares profit to Revenue (a larger number). As long as you make a profit, Markup will always be the higher percentage.

No. Gross Margin only considers 'Direct Costs' (COGS). It does not deduct rent, marketing, administrative salaries, or taxes. Those are deducted to find 'Net Profit Margin'.

It depends entirely on the industry. A grocery store is successful with 2% margins due to high volume, while a software company might fail with anything under 70% due to high R&D and acquisition costs.