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Gross Margin % Formula:
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Gross Margin Percentage is a key financial metric that measures the proportion of money left over from revenues after accounting for the cost of goods sold (COGS). It shows the percentage of revenue that exceeds the cost of goods sold and is available to cover operating expenses and generate profit.
The calculator uses the Gross Margin % formula:
Where:
Explanation: The formula calculates what percentage of revenue remains after subtracting the direct costs associated with producing the goods or services sold.
Details: Gross Margin Percentage is crucial for assessing a company's financial health, pricing strategies, and operational efficiency. It helps businesses understand their profitability at the most fundamental level and make informed decisions about pricing, cost control, and product mix.
Tips: Enter revenue and COGS in dollars. Both values must be positive numbers, and revenue should be greater than or equal to COGS for a valid calculation.
Q1: What is a good gross margin percentage?
A: A "good" gross margin varies by industry. Generally, margins above 20% are considered healthy, but technology companies may have margins over 70% while retail might be 25-35%.
Q2: How is gross margin different from net margin?
A: Gross margin only subtracts COGS from revenue, while net margin subtracts all expenses (including operating expenses, taxes, interest) from revenue.
Q3: Can gross margin be negative?
A: Yes, if COGS exceeds revenue, gross margin will be negative, indicating the company is selling products for less than it costs to produce them.
Q4: How often should I calculate gross margin?
A: Businesses should track gross margin regularly - monthly or quarterly - to monitor financial performance and identify trends.
Q5: What factors can affect gross margin?
A: Pricing changes, supplier costs, production efficiency, product mix, and inventory management can all impact gross margin percentages.