1. What is Gross Margin?

Gross Margin (GM) is a company's net sales revenue minus its cost of goods sold (COGS). It represents the amount of money a company retains after incurring the direct costs associated with producing the goods it sells.

2. How Does the Calculator Work?

The calculator uses the Gross Margin formula:

Where:

• \( Revenue \) — Total sales income
• \( COGS \) — Direct costs attributable to production

Explanation: The formula calculates the difference between what a company earns from sales and what it spends to produce those sales.

3. Importance of Gross Margin

Details: Gross margin is a key indicator of financial health, showing how efficiently a company uses labor and supplies in production. It's used to assess profitability and pricing strategies.

4. Using the Calculator

Tips: Enter monthly revenue and COGS in dollars. Both values must be positive numbers. The calculator will show the gross margin amount.

5. Frequently Asked Questions (FAQ)

Q1: What's a good gross margin percentage?
A: It varies by industry, but generally 50-70% is excellent, 30-50% is good, and below 30% may indicate pricing or cost issues.

Q2: How is gross margin different from gross margin percentage?
A: Gross margin is the dollar amount, while gross margin percentage is (Revenue - COGS)/Revenue × 100.

Q3: What expenses are included in COGS?
A: Direct costs like raw materials, direct labor, and manufacturing overhead directly tied to production.

Q4: Why track gross margin monthly?
A: Monthly tracking helps identify trends, seasonal patterns, and potential problems in production costs or pricing.

Q5: How can I improve my gross margin?
A: By increasing prices, reducing production costs, improving operational efficiency, or changing product mix.