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Gross Profit Margin illustration

Small Business · Margin

Gross Profit Margin

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Use gross profit margin to see how much of each sales dollar remains after the direct cost of producing your product or service.

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Interactive workbench

Service business margin

Revenue−Cost of Goods SoldRevenue

$40,000 cost on $100,000 revenue leaves a 60% gross margin.

Step 1 of 3

Variables and units

  • Revenue

    Total sales revenue for the period.

    currency

  • Cost of Goods Sold

    Direct cost of the goods or services sold.

    currency

Common mistakes

  • Including overhead or salaries in COGS.
  • Using profit instead of revenue in the denominator.

Step-by-step example

Service business margin

  1. 1. Start with the example inputs

    • Revenue$100,000
    • Cost of Goods Sold$40,000

  2. 2. Apply the formula

    Revenue−Cost of Goods SoldRevenue

  3. 3. Run the numbers

    60%

    $40,000 cost on $100,000 revenue leaves a 60% gross margin.

What this result means

A gross margin of 60% means that share of each sales dollar survives the direct cost of goods. It must cover rent, payroll, marketing, and profit, so know your industry's range — retail often runs 20–50%, services much higher. A falling margin usually traces to supplier costs or quiet discounting.