1. What is Gross Margin?

Gross margin is a financial metric that shows what percentage of sales revenue exceeds the cost of goods sold (COGS). It indicates how efficiently a company uses its resources to produce goods.

2. How Does the Calculator Work?

The calculator uses the gross margin formula:

Where:

• \( Price \) — Selling price of the item
• \( Cost \) — Cost to produce the item

Explanation: The formula calculates the percentage of revenue that exceeds the cost of goods sold.

3. Importance of Gross Margin Calculation

Details: Gross margin is crucial for understanding business profitability, pricing strategies, and operational efficiency. It helps compare performance across different companies and industries.

4. Using the Calculator

Tips: Enter the selling price and cost in dollars. Price must be greater than cost for a valid calculation.

5. Frequently Asked Questions (FAQ)

Q1: What's a good gross margin percentage?
A: This varies by industry, but generally 50-70% is excellent, 30-50% is good, and below 30% may indicate pricing or cost issues.

Q2: How is gross margin different from markup?
A: Markup is (Price - Cost)/Cost, expressed as a percentage of cost. Gross margin is (Price - Cost)/Price, expressed as a percentage of price.

Q3: Can gross margin be over 100%?
A: No, since cost can't be negative, gross margin can't exceed 100%. If cost is zero, margin would be 100%.

Q4: Why is gross margin important for businesses?
A: It shows how much money is available to cover operating expenses and generate profit after accounting for direct costs.

Q5: How often should businesses calculate gross margin?
A: Businesses should track it regularly (monthly or quarterly) to monitor pricing strategies and cost control effectiveness.