Updated · Built and checked by the PlinzoTools team, formulas tested against published sources
Calculate gross profit and gross margin from revenue and cost of goods sold (COGS).
Gross profit is revenue minus the direct cost of producing what was sold (COGS) -- before operating expenses, tax, and interest are subtracted.
Enter revenue and COGS. Gross profit and gross margin appear instantly.
Gross Profit = Revenue - COGS
Gross Margin % = (Gross Profit / Revenue) × 100
With the default inputs, revenue is 500 and cost of goods sold is 300, so gross profit is 200 and gross margin is 200 divided by 500, which is 40 percent. Consider a hypothetical monthly view for a small bakery: sales of 12,000, and ingredients plus packaging plus the wages of the bakers who make the products totalling 7,800. Gross profit is 4,200 and gross margin is 35 percent. That 4,200 must then pay for rent, utilities, marketing, admin, loan interest and tax before anything is left for the owner.
Cost of goods sold covers the direct costs of what you actually sold in the period. Typical inclusions:
Typical exclusions are rent for the head office, marketing, general administration and financing costs. Those are operating expenses and come further down the income statement. How to classify borderline items, such as warehouse rent or payment processing fees, depends on your accounting policy, so ask your accountant rather than guessing if it affects reported results.
A common error is entering everything you purchased during the period. COGS should reflect the cost of the items sold, not items still in stock. If you bought 10,000 of inventory but sold goods that cost you 6,000, COGS is 6,000. Businesses that hold inventory generally work it out as opening inventory plus purchases minus closing inventory. This tool takes your COGS figure directly and does not calculate inventory movements.
Use the result as a management figure. For financial statements, tax returns or lender reporting, follow the definitions your accountant or the relevant accounting standard requires.
Gross profit only subtracts direct production costs (COGS); net profit subtracts ALL expenses including overhead, tax, and interest. See the Net Profit Margin Calculator for the fuller picture.
Generally no. COGS holds the direct costs of producing or purchasing what you sold. Rent, marketing and admin are operating expenses and are deducted after gross profit.
No, only the cost of items actually sold in the period. Unsold stock stays on the balance sheet as inventory.
The tool shows gross margin as 0 percent to avoid dividing by zero, and gross profit is negative by the amount of COGS entered.
It is a positive sign, but it must still cover operating expenses. A business can have a strong gross margin and remain unprofitable if overheads are too large.
Reference: Consumer Financial Protection Bureau