Gross Profit Calculator
Enter revenue and cost — get gross profit, gross margin, and markup. The classic margin-vs-markup distinction is explained below in plain English.
How to use this calculator
- Enter revenue — the total money received from the sale (before discounts or returns).
- Enter cost of goods sold (COGS) — the direct cost of producing or acquiring what you sold. Materials, direct labor, inbound shipping.
- The result shows three numbers: gross profit (revenue minus cost), gross margin (profit as % of revenue), and markup (profit as % of cost).
- Margin and markup look similar but answer different questions. Margin tells you "what fraction of each sale is profit?" Markup tells you "how much did I add on top of cost?"
How the math works
The classic confusion: a 50% markup is NOT a 50% margin. If your cost is $100 and you sell for $150, you have $50 profit. That's a 50% markup ($50 / $100) but only a 33% margin ($50 / $150). Margin can never exceed 100%; markup can.
Tips
- Gross profit ignores overhead. Rent, salaries (non-production), marketing, software — those come out of gross profit to produce operating profit. A 40% gross margin can easily become a 5% operating margin once overhead is paid.
- Pricing from cost is risky. "Cost plus 50%" sounds safe but tells you nothing about whether the market will pay. Better: price based on what customers value, then make sure margin is acceptable.
- Track margin by product, not just total. A blended margin hides money-losing SKUs. The 80/20 rule applies: most businesses have 20% of products generating 80% of profit, and a stubborn tail of low- or negative-margin items.
- Service businesses use "gross profit" differently. COGS for a service is usually direct labor and any pass-through materials. Some service businesses calculate "contribution margin" (revenue minus all variable costs) instead — it answers the more useful question of how much each sale contributes to fixed costs.
Frequently asked questions
What's the difference between gross profit and net profit?
Gross profit = revenue − cost of goods sold (COGS). Net profit = gross profit − all other expenses (rent, salaries, marketing, taxes, interest, etc.). Gross tells you about your product economics; net tells you whether the whole business is making money.
What's a good gross margin?
Wildly industry-dependent. Software/SaaS: 70-90%. Restaurants: 60-70% on food (then crushed by labor and rent). Retail: 30-50%. Construction: 20-30%. Wholesale: 10-20%. Compare to others in your specific industry, not to a generic benchmark.
How is margin different from markup?
Margin is profit as a percentage of REVENUE: $40 profit / $100 sale = 40% margin. Markup is profit as a percentage of COST: $40 profit / $60 cost = 66.7% markup. Same dollars, different ratios. Most business owners think in markup when pricing; most investors think in margin when comparing companies.
Should I include shipping in cost?
Inbound shipping (getting goods to you): yes — that's part of COGS. Outbound shipping (to the customer): typically a separate line, either passed through to the customer or counted as a fulfillment/operating expense. Either way, be consistent.
Why is my gross margin lower than competitors?
Common causes: high-cost suppliers (you can negotiate or switch), low pricing power (your product isn't differentiated enough), promotional discounts eating into margin, expensive shipping in your COGS, or just an honest difference in business model. Track it monthly and look for trend, not single-month variance.