Revenue and costs Updated November 2026

Gross margin

Gross margin = (revenue - cost of goods sold) / revenue, shown as a percentage. Gross profit is the amount; gross margin is the ratio. A 40% gross margin means 40 cents of every sales dollar is left after direct costs to cover operating expenses and profit.

Syntax

Gross margin = (Revenue - COGS) / Revenue

Examples

Revenue 1,000, COGS 600
=(1000 - 600) / 1000

Result: 40.0%

Gross profit 150 on revenue 500
=150 / 500

Result: 30.0%

Margin vs markup: cost 60, price 100
Margin = 40/100, Markup = 40/60

Result: 40.0% margin, 66.7% markup

Common mistakes

Dividing by COGS instead of revenue, which gives markup, not margin.
Leaving depreciation of production equipment out of COGS for a manufacturer, which overstates gross margin versus peers.
Mixing periods: revenue for the year against COGS for a quarter.

Practice Gross margin

These drills check your answer on live data, free, no account needed.

Gross profit and gross marginRevenue grows with B2 and cost of goods sold is given. Fill two rows: gross profit in row 7 (revenue less cost) and gross margin in row 8 (gross profit as a share of revenue).
Cost as a share of revenueCost of goods sold runs at the percentage of revenue in B2. Fill row 6 with the cost for each year: write B6, then fill right to F6.

Questions

How do I convert markup to margin?

Margin = markup / (1 + markup). A 50% markup is a 33.3% margin; a 100% markup is a 50% margin.

What is a good gross margin?

Software often runs 70% to 90%, retail 25% to 50%, grocery and distribution under 25%. Compare to direct competitors, not to other industries.

COGS as a percent of revenueCOGS % = cost of goods sold / revenue, and forecast COGS = revenue x COGS %. How to compute the historical ratio, project it and link it to gross margin.
EBITDA marginEBITDA margin = EBITDA / revenue, the share of each sales dollar left as operating profit before D&A. Formula, exact examples, what is a good margin, errors.
Break-even pointBreak-even units = fixed costs / (price - variable cost per unit); break-even revenue = fixed costs / contribution margin ratio. Examples, margin of safety.
EBITDAEBITDA = EBIT + depreciation and amortization, or net income + interest + taxes + D&A. Exact worked examples, what EBITDA leaves out and the usual mistakes.