Gross Margin Calculator (with Cost Ratio) | Free Profitability Tool
Calculate gross profit, gross margin rate, and cost ratio instantly from revenue and cost. Also reverse-calculates the selling price needed to hit a target margin, useful for pricing and negotiating with suppliers.
Tips
- Include labor and overhead directly tied to production in your cost figure for a more accurate gross margin.
- Typical gross margin ranges vary widely by industry — around 20–30% for retail and 60–70% for restaurants — so compare against businesses in the same industry.
- Since cost ratio equals 100% minus gross margin rate, you only need to track one of the two; the other follows automatically.
- Use the reverse mode to set a selling price that protects your target margin when costs rise or you are planning a price change.
Frequently Asked Questions
Side Note — How Gross Margin Differs From Operating Margin
Gross margin measures the profit left after subtracting only the direct cost of goods sold from revenue. It does not yet account for operating expenses such as salaries, rent, or marketing, so a healthy gross margin does not automatically guarantee a healthy bottom line.
That is why financial analysis typically looks at both gross margin and operating margin together. Gross margin reflects the profitability of the product or service itself, while operating margin reflects the profitability of the business as a whole after all operating costs are deducted.
Gross margins also vary enormously by industry: wholesalers and retailers often run in the 20–30% range because they resell goods with a relatively thin markup, while service-heavy industries such as restaurants or salons can exceed 60–70% because their direct costs are limited to ingredients or supplies. Comparing margins across very different industries can be misleading for this reason.