How is gross profit calculated?

Gross profit is calculated by subtracting the Cost of Goods Sold (COGS) from total revenue. The formula is: Gross Profit = Revenue − COGS. For example, if you sell a product for $100 and it costs you $60 to make or buy, your gross profit is $40.

What is gross margin percentage?

Gross margin percentage shows what portion of each dollar of revenue is kept as gross profit after covering the direct cost of the product or service. The formula is: Gross Margin % = (Gross Profit ÷ Revenue) × 100. A 40% gross margin means you keep $0.40 of every $1.00 in revenue before paying operating expenses.

What is the difference between gross profit and net profit?

Gross profit only subtracts the direct costs of producing or buying what you sell (COGS). Net profit subtracts all costs, including operating expenses like rent, salaries, marketing, taxes, and interest. Gross profit is a measure of production efficiency, while net profit shows overall business profitability after every expense.

What is the difference between margin and markup?

Margin is profit as a percentage of selling price. Markup is profit as a percentage of cost. For example, if a product costs $60 and sells for $100: Margin = (40 ÷ 100) × 100 = 40%. Markup = (40 ÷ 60) × 100 = 66.7%. The same profit looks like a different number depending on which formula you use. Retailers often use margin; manufacturers often use markup.

What is a good gross profit margin?

A good gross profit margin depends heavily on industry. Software and services typically see 60–80%+ margins. Retail averages 20–50%. Grocery and food often run 5–25%. Manufacturing typically falls between 20–40%. The key is to compare your margin to others in your specific industry and track whether it is improving over time.

Gross Profit Calculator – Calculate Gross Margin %, Markup & Net Profit for Any Product or Business

Gross Profit Calculator

Enter your revenue and cost of goods sold to instantly see gross profit, gross margin percentage, markup, and estimated net profit — free business profit calculator.

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Standard COGS formula

Enter Your Numbers

Total Revenue ($)

Total sales or income before any deductions

Cost of Goods Sold — COGS ($)

Direct cost to produce or purchase what you sold

Time Period

Currency Symbol

Operating Expenses ($)

Rent, salaries, marketing, admin costs

Tax Rate (%)

Business income tax rate — shows net profit after tax

Units Sold

Optional — calculates gross profit per unit

Target Gross Margin (%)

See what revenue or COGS you need to hit your target

Industry Type

Your Profit Breakdown

Fill in your revenue and COGS on the left and click Calculate Gross Profit to see your full breakdown.

Gross Profit

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Gross Margin: 0%

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Profit Breakdown

Revenue —

Cost of Goods Sold (COGS) —

Gross Profit —

Gross Margin % —

Markup % —

Gross Profit per Unit —

Adj. Gross Profit (after discounts, returns & shipping) —

Gross Profit per SKU —

Operating Expenses —

Operating Profit (EBIT) —

Estimated Tax —

Net Profit (after tax) —

Revenue Needed for Target Margin —

vs Industry Benchmark —

Revenue Breakdown

Revenue vs Costs vs Profit

How Gross Profit Works

Gross profit is what is left from your sales revenue after you subtract the direct cost of making or buying what you sold. Those direct costs are called Cost of Goods Sold, or COGS.

If your business sells furniture and you bring in $80,000 in sales but paid $48,000 to buy the furniture from suppliers, your gross profit is $32,000. That money has to cover your rent, staff wages, advertising, and everything else before you call what is left net profit.

Gross profit on its own is a number. Gross margin is that number shown as a percentage of revenue. It is the more useful figure when comparing your business to others or tracking performance over time.

Gross Profit Formula

The core formulas are simple:

Gross Profit = Revenue − COGS
Gross Margin % = (Gross Profit ÷ Revenue) × 100
Markup % = (Gross Profit ÷ COGS) × 100
Net Profit = Gross Profit − Operating Expenses − Tax

Example: Revenue = $100,000 · COGS = $60,000 · Gross Profit = $40,000 · Gross Margin = 40% · Markup = 66.7%.

Gross Margin Benchmarks by Industry

Industry	Typical Gross Margin	Why It Varies
Software / SaaS	65% – 80%+	Low COGS — mainly hosting costs
Professional Services	50% – 70%	Labour-intensive, no physical goods
Healthcare / Medical	30% – 60%	Varies widely by service type
Retail — General	25% – 50%	Depends on category and sourcing
E-commerce	20% – 45%	Shipping and returns eat into margin
Manufacturing	20% – 40%	Raw materials and production costs
Construction	15% – 30%	Labour and materials dominate
Restaurant / Food	10% – 35%	Perishables and portion waste
Grocery / Supermarket	5% – 25%	High volume, thin margins

Ranges are estimates. Your actual margin depends on pricing power, supplier terms, and operating efficiency.

Margin vs Markup — Key Differences

These two numbers measure the same profit but from different starting points. Confusing them is one of the most common pricing mistakes in business.

Margin is profit as a share of the selling price. A 40% margin means you keep 40 cents of every dollar you collect.
Markup is profit as a share of the cost. A 66.7% markup means you added 66.7 cents to every dollar you spent to produce the item.
The same product can have a 40% margin and a 66.7% markup at the same time — neither number is wrong, they just answer different questions.
Retailers and accountants tend to use margin. Manufacturers, wholesalers, and buyers often use markup.
If someone quotes you a "50% markup," that is only a 33.3% margin. Always confirm which metric is being used before setting prices.

Frequently Asked Questions

Subtract your Cost of Goods Sold from your total revenue. Gross Profit = Revenue − COGS. For gross margin %, divide the gross profit by revenue and multiply by 100. Example: Revenue $80,000 − COGS $48,000 = Gross Profit $32,000. Gross Margin = (32,000 ÷ 80,000) × 100 = 40%.

COGS includes only the direct costs tied to producing or purchasing what you sold. For a retailer that means the wholesale price of the goods. For a manufacturer it includes raw materials, direct labour, and factory overhead. It does not include rent, marketing, management salaries, or other overhead — those are operating expenses that come out of gross profit later to get to net profit.

Gross profit only removes the direct cost of what you sold. Net profit removes every cost — rent, staff wages, utilities, marketing, loan interest, and taxes. A business can have a healthy gross profit but still report a net loss if its operating expenses are too high. That is why tracking both numbers matters: gross profit tells you about production efficiency, while net profit reveals overall financial health.

There are two levers: increase your prices or reduce your COGS. To raise prices, focus on value, differentiation, or moving to premium customers. To cut COGS, negotiate better supplier terms, buy in larger volumes, reduce waste, or find lower-cost alternatives without sacrificing quality. Even a 5% improvement in gross margin on a $1 million revenue business adds $50,000 straight to profit before operating expenses.

Yes. Negative gross profit means your COGS exceeds your revenue — you are selling products for less than they cost you to produce or buy. This is a serious warning sign and is not sustainable. It can happen during heavy discounting, price wars, or when cost inputs spike unexpectedly. If your gross profit is negative, raising prices or cutting COGS must be addressed before any other business improvement matters.

Generally yes — a higher gross margin gives you more money to cover operating expenses and invest in growth. But context matters. A grocery store at 15% margin running on massive volume can be very profitable. A software company at 75% margin losing customers may not be. Always look at gross margin together with revenue growth, customer retention, and net profit to get the full picture.

Gross Profit by Revenue at Common COGS Percentages

How much gross profit you keep at different revenue levels when COGS represents various shares of revenue.

Revenue ($)	COGS 20%Margin 80%	COGS 40%Margin 60%	COGS 50%Margin 50%	COGS 60%Margin 40%	COGS 70%Margin 30%	COGS 80%Margin 20%

Gross Profit = Revenue × (1 − COGS%). Currency shown as $.

Gross Margin % → Markup % Conversion

Quickly convert between margin and markup — the same profit expressed as a share of price versus a share of cost.

Gross Margin %	Markup %	COGS % of Revenue	Profit per $100 Revenue	Profit per $100 Cost

Markup % = Margin % ÷ (1 − Margin%). For example a 40% margin equals a 66.7% markup — a common source of pricing errors.

Max COGS Allowed to Hit Your Target Gross Margin

How much you can afford to spend on COGS at different revenue levels to reach a specific margin goal.

Revenue ($)	Target 30%	Target 40%	Target 50%	Target 60%	Target 70%

Max COGS = Revenue × (1 − Target Margin). If your current COGS is above this, you need to cut costs or raise prices.

Gross Margin Benchmarks by Industry & Business Type

Reference ranges to see how your margin compares to peers in your sector.

Industry	Low	Average	High	Primary Cost Driver	COGS Includes
Software / SaaS	55%	71%	85%	Cloud/hosting	Servers, API costs, support
Professional Services	45%	60%	75%	Labour	Direct staff time, subcontractors
Healthcare	25%	48%	65%	Supplies & labour	Medical supplies, clinical staff
Retail — Apparel	35%	48%	60%	Inventory cost	Wholesale price, import duties
Retail — Electronics	10%	28%	40%	Product cost	Wholesale, freight
E-commerce	15%	35%	55%	Product + shipping	Goods, fulfilment, returns
Manufacturing	15%	30%	45%	Raw materials	Materials, direct labour, factory OH
Construction	10%	22%	35%	Materials & labour	Subcontractors, materials, equipment
Restaurant / Food	5%	22%	40%	Food cost	Ingredients, packaging
Grocery	3%	15%	28%	Inventory	Wholesale cost, spoilage
Automotive — Sales	5%	15%	22%	Vehicle cost	Dealer invoice price
Digital Products	60%	75%	90%	Minimal	Platform fees, delivery bandwidth

Sources: IBISWorld, NYU Damodaran dataset, industry reports. Ranges are indicative and vary by company size, geography, and competitive environment.

Estimated Net Profit After Operating Expenses & Tax

What remains after gross profit covers typical operating expenses at common tax rates.

Gross Profit ($)	OpEx 30% of GP	OpEx 50% of GP	After Tax 15%	After Tax 21%	After Tax 28%

Assumes OpEx is a percentage of gross profit. Net profit after tax uses operating profit × (1 − tax rate). Actual figures depend on your specific cost structure and jurisdiction.

Required Selling Price to Hit Target Gross Margin

What selling price you need at different cost levels to reach your desired gross margin.

Unit Cost ($)	20% Margin	30% Margin	40% Margin	50% Margin	60% Margin	70% Margin

Required Selling Price = Unit Cost ÷ (1 − Desired Margin). Use this to set prices that guarantee your margin target from the start.