2016-12-07 00:00:00 Finance and Accounting English Gross margin is an accounting ratio that indicates how profitable a business is. Follow these steps to calculate the gross margin of a... https://d1bkf7psx818ah.cloudfront.net/wp-content/uploads/2017/03/08214707/Two-men-at-office-desk-with-laptop-explore-gross-margin.jpg How To Calculate Gross Margin

How To Calculate Gross Margin

0 min read

Gross margin is a percentage that indicates how well a small business retains its gross profit. A higher gross margin indicates that a business is more profitable. For example, a business with a gross margin of 40 percent can retain 40 cents from each dollar of revenue it generates.

To calculate gross margin, take the following steps:

  1. Determine the total sales revenue of the business.

  2. Add up all the costs of sales, including the costs in producing or purchasing the goods and sales commissions, to determine the cost of goods sold.

  3. Subtract the cost of goods sold from the revenue, and divide the difference by the revenue.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Related Articles

Balancing Margin and Volume to Maximize Business Profit

Of course you want to maximize your business’s profit. Do just that…

Read more

Measuring Sales Using a Complete Toolbox

While some companies are satisfied only looking at total sales, there are…

Read more

What Is Keystone Pricing?

Keystone pricing is a retail industry practice of setting the retail price…

Read more