What is Gross Margin?
Gross margin, or profit margin, is the percentage of profit you earn after deducting the costs of goods sold from revenue.
These costs of good sold, referred to as COGS, are variable costs
that change as the number of units produced changes. These costs include such things as labor and materials.
, on the other hand, do not change with units produced. Examples are rent, utilities and property insurance.
How to Calculate Gross Margin
Determine the following two things:
- 1. Your variable costs for the items you sell during a given period.
- 2. The total revenue earned for this same period.
Simple Gross Margin Formula Cheatsheet
To calculate gross margin percent:
(Revenue – variable cost per unit)/revenue = gross margin percentage