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 proportion of money left over from revenues after accounting for the cost of goods sold.

2. How Does the Calculator Work?

The calculator uses the Gross Margin formula:

Where:

• \( Revenue \) — Total sales revenue in pounds
• \( COGS \) — Cost of Goods Sold in pounds

Explanation: The formula calculates the percentage of revenue that exceeds the direct costs associated with producing the goods sold by a company.

3. Importance of Gross Margin Calculation

Details: Gross margin is a key indicator of a company's financial health and operational efficiency. It helps businesses set pricing strategies, control costs, and compare performance against industry benchmarks.

4. Using the Calculator

Tips: Enter revenue and COGS in pounds sterling (£). Both values must be positive numbers, and revenue must be greater than zero for a valid calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is a good gross margin percentage?
A: This varies by industry, but generally a higher percentage is better. Retail typically ranges 20-30%, while software might be 80%+.

Q2: How is gross margin different from net margin?
A: Gross margin only considers COGS, while net margin accounts for all expenses including operating costs, taxes, and interest.

Q3: Can gross margin be negative?
A: Yes, if COGS exceeds revenue, indicating a company is selling products for less than they cost to produce.

Q4: How often should I calculate gross margin?
A: Businesses should track it regularly (monthly or quarterly) to monitor financial health and spot trends.

Q5: Does this calculator work for service businesses?
A: Yes, though service businesses typically use "Cost of Services" rather than COGS in their calculations.