Formula
Gross margin stops at the cost of goods. Rent, payroll, and tax stay out:
Gross margin = (revenue − cost of goods sold) / revenue
Gross profit is the dollar amount before those operating costs.
Assumptions
- Cost of goods includes only the direct cost of what was sold.
- Operating expenses are left for the net margin page.
Worked example
Revenue of $80,000.00 and cost of goods of $48,000.00 is a gross margin of 40.00%.
Input definitions
- Cost of goods sold
- The direct cost of the products sold in the period.
- Gross profit
- Revenue minus that direct cost.
Limitations
This is a planning estimate, not accounting, tax, payroll, or advertising advice. The currency control changes the symbol only.
Questions
Should I include rent?
No. Rent is an operating expense. Use the net profit margin page for that.
Is gross margin the same as markup?
No. Gross margin divides by revenue. Markup divides by cost.