Gross Margin Calculator

What does gross margin actually measure?

Gross margin tells you whether the thing you sell makes money before the business around it gets paid for. Revenue minus the direct cost of what went out of the door, as a percentage of revenue. Nothing else comes into it.

That narrow definition is deliberate. Rent, salaries and software cost the same next month whether you sell one unit or a thousand, so leaving them out isolates how the product itself performs. A bakery running 68% on bread knows the loaf works. Whether the shop works is a separate question, and our operating margin calculator answers it.

Two businesses with identical turnover can be twenty points apart on this number, and the gap nearly always comes from buying rather than selling. Gross margin is a buying metric wearing pricing clothes.

What belongs in cost of goods sold?

Anything that would not exist if the sale had not happened. For most UK traders that means the purchase price of the stock, net of settlement discounts you actually take, plus carriage inwards with any duty and clearance fees on imports. Direct labour counts too, where the work is paid per item rather than per hour. So does packaging that goes out with the product, which sounds trivial until you price a £4 item and find the box and the mailer eat 30p of it.

Payment processing is a borderline case. A 1.5% card fee behaves like a direct cost because it scales with every single sale, and folding it in gives you a truer margin even if your accountant reports it below the line. Include it if you want to. Just be consistent, because a margin that jumps whenever the classification changes is telling you nothing at all.

Out: rent, insurance, your own salary, marketing, the accountant's bill. Those live further down. Our gross profit and net profit comparison shows where each cost lands on a real set of accounts.

How do you move gross margin without raising prices?

Buy better, first. A 3% improvement on cost lifts a 35% margin to about 37%. Consolidating orders to reach a rebate tier, or moving from annual to quarterly price reviews, usually finds that much without anyone touching a shelf edge.

After that, look at mix. Selling more of what already carries a high margin lifts the blended figure while every individual price stays exactly where it was. It is also why the same range produces two different margins in two branches of the same chain, and why the branch manager who keeps pushing the low-margin bestseller is not helping as much as the sales figures suggest.

Then there is leakage. Wastage, breakage, unclaimed supplier credits, free delivery nobody costed. All of it lands inside cost of sales and almost none of it appears as a line anyone reviews at month end.

Last, check the arithmetic itself. Adding a target percentage to cost, instead of dividing by one minus the target, understates every price on the range. Run a sample through the margin calculator on the homepage and compare it against your live prices. If the two percentages keep getting mixed up in your buying meetings, margin vs markup is the page to send round.