1. What is Gross Margin?

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

2. How Does the Calculator Work?

The calculator uses the Gross Margin formula:

Where:

• \( \text{Revenue} \) — Total income from sales before any expenses
• \( \text{COGS} \) — Direct costs attributable to production of goods sold

Explanation: The formula calculates the percentage of revenue that exceeds direct production costs, showing what proportion is available to cover operating expenses and profit.

3. Importance of Gross Margin Calculation

Details: Gross Margin is crucial for assessing a company's production efficiency, pricing strategy effectiveness, and overall financial health. It helps compare performance across companies and industries.

4. Using the Calculator

Tips: Enter revenue and COGS in currency values (dollars). Revenue must be greater than zero. The calculator will compute the gross margin percentage.

5. Frequently Asked Questions (FAQ)

Q1: What's a good gross margin percentage?
A: This varies by industry. Generally, 15-20% is average, 20-30% is good, and above 30% is excellent, but compare with industry benchmarks.

Q2: How is gross margin different from net margin?
A: Gross margin only considers COGS, while net margin considers all expenses (operating costs, taxes, interest, etc.).

Q3: Can gross margin be negative?
A: Yes, if COGS exceeds revenue, indicating serious production or pricing issues.

Q4: How often should gross margin be calculated?
A: Typically calculated quarterly for financial reporting, but can be monitored monthly for business insights.

Q5: Does gross margin include labor costs?
A: Only direct labor costs associated with production are included in COGS. Indirect labor is an operating expense.