Gross Profit Calculator

This page gives the money; the gross margin page gives the percentage

Gross profit and gross margin are the same calculation read two ways, and the site keeps them apart deliberately. This page leads with the currency figure — the $80,000 that has to cover everything else — because that is the number you budget against. If the percentage is what you are comparing across products, periods or competitors, the gross margin calculator leads with that instead and carries the margin-versus-markup arithmetic in more depth.

A 40% margin is what remains to pay for everything that is not the product itself

Revenue of $200,000 less $120,000 of cost of goods leaves $80,000 — a 40% gross margin, with cost of goods consuming the other 60%. That $80,000 is the entire budget for rent, salaries outside production, marketing, software, interest and profit. Nothing else is coming.

Reading it that way makes the number actionable. A business with $150,000 of overhead and a 40% margin needs $375,000 of revenue to break even. Lift the margin to 50% and break-even falls to $300,000. Gross margin is the multiplier on every sales dollar, which is why a point of margin is usually worth more than a point of revenue growth.

Move one cost across the line and the margin changes without the business changing

Cost of goods should hold costs that vary directly with what you sell: materials, the labour that makes or delivers the unit, inbound freight, manufacturing overhead, and for a reseller the purchase price plus landed cost. Salaries of people who would be paid whether or not you sold anything belong below the line, in operating expenses.

The boundary is genuinely contested for service and software businesses. Hosting and customer-support cost sit in cost of revenue for some SaaS companies and in operating expense for others, and gross margins of 70% and 85% can describe identical businesses reported differently. When comparing margins across companies, check what each includes before concluding anything.

A 40% margin is a 66.7% markup, and confusing them underprices consistently

Margin divides profit by the selling price; markup divides the same profit by the cost. Here $80,000 of profit on $200,000 of revenue is a 40% margin, while $80,000 on $120,000 of cost is a 66.7% markup. Both describe the same transaction.

The error is one-directional and expensive. A business wanting a 40% margin that applies a 40% markup to cost sells at $168,000 instead of $200,000, achieving a 28.6% margin — nearly a third less gross profit than intended, on every single sale. To hit a target margin, divide cost by one minus the margin rather than multiplying cost by it.

A high gross margin and a loss-making business are entirely compatible

Gross profit says nothing about overhead. A software business with a 90% gross margin and $2m of operating expenses against $1m of revenue is losing money heavily; a distributor at 12% with disciplined costs can be reliably profitable. Gross margin describes the unit economics, not the business.

It is also a single period. Seasonal businesses, companies carrying inventory at varying cost, and anything with long production cycles can show gross margins that swing sharply between periods for reasons that have nothing to do with pricing. Inventory accounting choices — FIFO against weighted average — move the figure too, which is another reason cross-company comparison needs care.

Sources & References

Figures on this page are checked against primary, authoritative sources. Links open in a new tab.

• Beginners’ Guide to Financial Statements — shows the income statement subtracting cost of sales from revenue to arrive at gross profitU.S. Securities and Exchange Commission · verified 2026-06-05
• IAS 1 Presentation of Financial Statements — sets out how revenue and cost of sales are presented in profit or loss, the basis for gross profitIFRS Foundation · verified 2026-06-05

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