What is gross margin ratio?

Gross margin ratio (also called gross profit margin) is gross profit expressed as a percentage of revenue. Gross profit = Revenue − COGS. A 40% gross margin means that for every $1 of revenue, $0.40 remains after paying for the goods or services sold.

What is the difference between gross margin and markup?

Gross margin is gross profit divided by revenue. Markup is gross profit divided by cost. A product that costs $60 and sells for $100 has a 40% gross margin but a 66.7% markup. Margin is based on the selling price; markup is based on the cost.

What is a good gross margin ratio?

It depends heavily on the industry. Software companies often exceed 70–80%. Retail businesses typically run 20–50%. Grocery and commodity businesses may be under 25%. Compare your ratio to industry benchmarks rather than a universal target.

How is break-even revenue calculated?

Break-even revenue = Fixed Costs / Gross Margin Ratio. If your fixed costs are $50,000 per month and your gross margin is 40%, you need $125,000 in revenue to cover those fixed costs. Profit begins above that threshold.

Does gross margin include operating expenses?

No. Gross margin only deducts cost of goods sold (direct costs: materials, labor, manufacturing). Operating expenses such as rent, salaries, marketing, and depreciation are subtracted later to arrive at operating income (EBIT).

Gross Margin Ratio Calculator

Name: Gross Margin Ratio Calculator
Availability: InStock
Author: Nham Vu

Enter revenue and cost of goods sold to get gross margin ratio, markup percentage, and break-even revenue instantly.

Inputs

Revenue (Net Sales)

Cost of Goods Sold (COGS)

Fixed Costs (optional — for break-even)

Results

Enter values and click Calculate

Summary

Enter revenue and cost of goods sold to get gross margin ratio, markup percentage, and break-even revenue instantly.

How it works

Enter your total revenue (net sales) in the Revenue field.
Enter your cost of goods sold (COGS) in the COGS field.
The gross profit is calculated automatically as Revenue minus COGS.
Gross margin ratio = Gross Profit / Revenue × 100.
Markup percentage = Gross Profit / COGS × 100.
Break-even revenue is the minimum revenue needed to cover fixed costs at your current margin.

Use cases

Evaluating product pricing before launching a new product line.
Comparing gross margin ratios across business units or time periods.
Benchmarking your gross margin against industry averages.
Calculating the markup needed to achieve a target margin.
Estimating break-even revenue when entering fixed overhead costs.
Analyzing how a supplier price increase affects overall margin.
Setting wholesale vs retail price points.
Reviewing quarterly financials to spot margin compression.

Frequently Asked Questions

Last updated: 2026-06-11 · Reviewed by Nham Vu