Gross Margin Calculator
From revenue and COGS, compute gross profit and gross margin — the profit left per dollar of revenue after direct costs.
Input Data
Results
At a glance:Gross margin measures how much of each revenue dollar stays as gross profit after direct production/purchase costs — the product's profit space and pricing power. Gross profit = revenue − COGS; gross margin = gross profit ÷ revenue × 100%. It is the income statement's first profitability gate, deducting only direct costs (not rent, payroll, marketing). High margin = pricing power or cost efficiency, bigger buffer; low = thin room. Read with operating and net margins; levels are industry-specific — compare with peers and history, and keep COGS consistent.
Formula
Gross profit = revenue − COGS.
Gross margin = gross profit ÷ revenue × 100%.
$$\text{Gross Profit} = \text{Revenue} - \text{COGS}$$$$\text{Gross Margin} = \dfrac{\text{Revenue} - \text{COGS}}{\text{Revenue}} \times 100\%$$How to Use
- Enter total revenue.
- Enter COGS (direct costs only).
- View gross profit and margin.
At fixed revenue HK$2,000,000, margin by COGS
| Revenue | COGS | Gross profit | Gross margin |
|---|---|---|---|
| HK$2,000,000 | HK$800,000 | HK$1,200,000 | 60.0% |
| HK$2,000,000 | HK$1,000,000 | HK$1,000,000 | 50.0% |
| HK$2,000,000 | HK$1,200,000 | HK$800,000 | 40.0% |
| HK$2,000,000 | HK$1,400,000 | HK$600,000 | 30.0% |
| HK$2,000,000 | HK$1,600,000 | HK$400,000 | 20.0% |
Each HK$200k rise in COGS cuts margin by 10pp. Margin is very cost-sensitive; low-margin retail/F&B can be wiped out by small input swings, while software/brands have a thicker buffer. Watch the margin trend.
Case Studies
Case 1: Two shops, very different margins
Both do HK$2,000,000 revenue: shop A (specialty coffee) COGS 800,000 → gross profit 1,200,000, margin 60%; shop B (grocery) COGS 1,600,000 → gross profit 400,000, margin 20%.
Same revenue, but A has HK$1,200,000 to cover rent, payroll and profit; B only HK$400,000. In HK's high-rent environment, B's 20% margin may not even cover rent and payroll — a potential loss-maker. High-margin sectors better resist cost and rent.
Case 2: Cost creep erodes the margin
Restaurant: last year revenue 2,000,000, food COGS 1,000,000 → margin 50%. This year, food and import FX raise COGS to 1,200,000 at the same revenue → margin 40%, gross profit shrinks from 1,000,000 to 800,000, HK$200k less a year.
With rent and payroll nearly flat, that HK$200k is absorbed by net profit. The owner's options: reprice the menu, switch suppliers, or optimise usage. This shows monitoring gross margin is key to catching cost pressure early and protecting profit.
FAQ
Gross margin vs net margin?
Gross margin deducts only direct costs (COGS), showing the product's profit space; net margin deducts all costs (operating, interest, tax) for the final profit. High gross but low net usually means heavy operating, financial or tax burdens. Reading the three margins together shows profit leakage down the statement.
What is included in COGS?
COGS are costs directly tied to production/purchase: raw materials, direct labour, purchase cost, production utilities. Not included: rent, admin payroll, marketing, and depreciation (per policy). The COGS definition directly affects the margin — compare periods/peers on a consistent basis.
What is a healthy gross margin?
No universal standard; industries differ hugely: software and branded consumer goods often 60%–80%, retail/trade may be ~10%–20%. Compare with peers and your own trend rather than external numbers; a falling margin is an early warning of price pressure or cost creep.
Costs that erode gross profit for HK SMEs?
Hidden costs for HK retail/F&B: FX on imported goods, freight and customs, shrinkage/expiry, and card/e-payment fees (~1%–3%). If these are booked as operating expenses rather than COGS, margin looks inflated; more importantly, even a decent margin can be killed by costly rent and payroll — so read gross margin with operating and net margins.
Does a lower margin always mean worse business?
Not always. A lower margin can be a deliberate strategy — cutting price for share, clearance sales, or a low-margin high-volume line. The key is whether volume rose accordingly: lower margin but higher volume and total gross profit may be successful volume play; lower margin with flat volume is the warning. Judge with revenue and total gross profit together.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.