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Gross Margin Formula:
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Gross Margin is a financial metric that represents the percentage of revenue remaining after accounting for the cost of goods sold (COGS). It indicates how efficiently a company is producing and selling its products.
The calculator uses the Gross Margin formula:
Where:
Explanation: The formula calculates what percentage of revenue remains after accounting for direct production costs, showing the company's production efficiency and pricing strategy effectiveness.
Details: Gross Margin is crucial for assessing a company's financial health, pricing strategies, production efficiency, and overall profitability. It helps investors and managers make informed decisions about business operations.
Tips: Enter revenue and COGS in USD. Both values must be positive numbers, with revenue greater than zero. The calculator will automatically compute the gross margin percentage.
Q1: What is a good gross margin percentage?
A: This varies by industry, but generally 15-20% is considered average, 20-30% is good, and above 30% is excellent. Service industries typically have higher margins than manufacturing.
Q2: How is gross margin different from net margin?
A: Gross margin only considers COGS, while net margin includes all operating expenses, taxes, and interest. Gross margin shows production efficiency, while net margin shows overall profitability.
Q3: Can gross margin be negative?
A: Yes, if COGS exceeds revenue, indicating the company is selling products for less than their production cost, which is unsustainable long-term.
Q4: What factors affect gross margin?
A: Production efficiency, material costs, labor costs, pricing strategy, competition, and economies of scale all impact gross margin.
Q5: How often should gross margin be calculated?
A: Most businesses calculate gross margin monthly as part of regular financial reporting, but it can be calculated for any period to track performance trends.