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Gross Margin

Also called: gross profit margin, gross margin percentage

Definition: Gross margin is gross profit as a percentage of sales: (sales − cost of goods sold) ÷ sales × 100. It shows how much of each sales dollar remains after direct costs.

Updated November 7, 2026 · How we check facts

Gross margin measures the share of sales left after paying the direct cost of the goods sold. Harvard Business School Online gives it as (Sales − Cost of Goods Sold) ÷ Sales. Because it is divided by the selling price, a gross margin is always below 100%.

Formula

gross margin (%) = (sales − COGS) ÷ sales × 100

Sales is the selling price (or total net sales); COGS is the direct cost of the goods sold.

Example

An item costs $60 and sells for $100. Gross profit is $40, so gross margin = 40 ÷ 100 × 100 = 40%. To reach that margin from a $60 cost, price = 60 ÷ (1 − 0.40) = $100.

Gross margin vs markup

Markup divides the same profit by cost instead of price. The $40 profit is a 40% gross margin but a 66.67% markup. Penn State Extension shows the same trap: a 30% markup on a $1.00 item yields only a 23% margin. See how to calculate profit margin for a conversion table, and the markup calculator to convert any pair.

Calculate it

Free toolProfit CalculatorProfit, margin and break-even in one place.Open →Free toolMarkup CalculatorMarkup, margin, profit and price in one place.Open →

Guides that explain it

How to Calculate Profit Margin (Gross, Net and vs Markup)

Related terms

Gross ProfitGross profit is net sales minus the cost of goods sold: the money left from selling a product after its direct costs, before operating expenses, interest and tax.MarkupMarkup is the amount added to a product's cost to reach its selling price, usually expressed as a percentage of cost: (price − cost) ÷ cost × 100.Net Profit MarginNet profit margin is net income as a percentage of sales: net income ÷ sales × 100. It shows how much of each sales dollar remains after every expense, interest and tax included.401(k)A 401(k) is an employer-sponsored retirement savings plan in which employees contribute part of their pay, often with employer matching, up to annual limits set by the IRS.Annual Percentage Rate (APR)Annual percentage rate (APR) is the cost of credit expressed as a yearly rate; for many loans it combines the interest rate with certain fees charged when the loan is made.Annual Percentage Yield (APY)Annual percentage yield (APY) is the total interest a deposit account pays over a 365-day period, expressed as a percentage that includes the effect of compounding.Catch-Up ContributionA catch-up contribution is an extra amount that people age 50 or older may add to a 401(k) or similar retirement plan above the normal annual limit, if the plan permits it.Compound InterestCompound interest is interest calculated on both the original principal and the interest already added to it, so the balance grows faster than it would with simple interest.

Sources