1. What is Gross Margin?

Gross Margin 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 income from sales before any expenses
• COGS — Direct costs attributable to the production of goods sold

Explanation: The formula calculates the difference between revenue and the direct costs of producing goods or services.

3. Importance of Gross Margin

Details: Gross Margin is a key indicator of a company's financial health and operational efficiency. It shows how efficiently a company uses labor and supplies in production.

4. Using the Calculator

Tips: Enter revenue and COGS in dollars. Both values must be positive numbers, with revenue typically being larger than COGS for a positive margin.

5. Frequently Asked Questions (FAQ)

Q1: What's a good gross margin percentage?
A: It varies by industry, but generally a higher percentage is better. Typical ranges are 20-30% for manufacturers, 50-60% for software companies.

Q2: How is gross margin different from gross profit?
A: Gross margin is typically expressed as a dollar amount, while gross profit margin is expressed as a percentage of revenue.

Q3: What costs are included in COGS?
A: Direct costs like raw materials, direct labor, and manufacturing overhead. Excludes indirect expenses like distribution and sales force costs.

Q4: Can gross margin be negative?
A: Yes, if COGS exceeds revenue, indicating the company is losing money on each sale.

Q5: How often should gross margin be calculated?
A: Typically calculated quarterly or annually as part of financial reporting, but can be calculated more frequently for internal analysis.