Business Tool

Gross Margin & Income Calculator

Calculate gross margin, EBIT, and net income from revenue, COGS, and operating expenses. Includes industry benchmarks and a complete income statement.

Gross Margin %-EBIT-Net Income-Industry Benchmarks

Business Financials

$

Total sales before any deductions

$

Direct costs to produce goods/services

$

Rent, salaries, marketing, SG&A

Income Statement

Revenue$500,000
- COGS($150,000)
Gross Profit$350,000
Gross Margin: 70.0%
- Operating Expenses($200,000)
EBIT$150,000
Operating Margin: 30.0%
- Taxes (21%)($31,500)
Net Income$118,500
Net Margin: 23.7%

Industry Gross Margin Benchmarks

SaaS / Software60-80%
Healthcare Services40-60%
Retail (Specialty)30-50%
Manufacturing20-40%
Restaurant / Food60-70% (before labor)
Grocery / Mass Retail1-5%

Gross Margin by Industry

IndustryGross MarginNet MarginKey Cost Driver
SaaS / Software65-80%15-30%Hosting, support
Digital Services60-75%10-20%Labor
Healthcare Services45-65%5-15%Labor, equipment
E-commerce30-50%2-5%Fulfillment, returns
Manufacturing25-40%5-12%Materials, labor
Grocery / Supermarket25-30%1-3%COGS, shrink

Understanding Business Profitability Metrics

Understanding the layers of business profitability - gross margin, operating margin, and net margin - gives you a complete picture of where a business makes and loses money. Each layer strips away different costs to reveal a different aspect of performance.

Gross margin focuses purely on product/service economics - can you produce your core offering profitably? A company with a 20% gross margin has limited headroom for overhead costs. One with 70% gross margin can invest heavily in sales and R&D while still generating strong net profit.

Frequently Asked Questions

What is gross margin?⌄
Gross margin is the percentage of revenue remaining after subtracting the cost of goods sold (COGS). Formula: Gross Margin % = (Revenue - COGS) / Revenue x 100. A 60% gross margin means $0.60 of every revenue dollar remains after direct production costs.
What is the difference between gross profit and gross margin?⌄
Gross profit is the dollar amount (Revenue - COGS). Gross margin is the percentage (Gross Profit / Revenue x 100). A company with $1M revenue and $400K COGS has a $600K gross profit and 60% gross margin.
What is a good gross margin?⌄
Varies by industry. Software/SaaS: 60-80%. Healthcare: 40-60%. Retail: 25-50%. Manufacturing: 20-40%. Restaurant: 60-70% food cost margin but low net margin. Compare to industry peers rather than a single benchmark.
What is COGS and what does it include?⌄
Cost of Goods Sold includes direct costs to produce your product/service: raw materials, direct labor, manufacturing overhead, and shipping costs. It does NOT include marketing, sales salaries, office rent, or administrative costs (those are operating expenses).
What is EBIT and how is it different from gross profit?⌄
Gross profit deducts only COGS. EBIT (Earnings Before Interest and Taxes) also deducts operating expenses (OpEx) like salaries, rent, and marketing. EBIT shows profitability from core operations before financing costs.
What is a healthy net profit margin?⌄
10%+ is considered healthy for most industries. 20%+ is excellent. Under 5% is thin and vulnerable to downturns. Amazon historically ran 1-3% net margin while investing heavily in growth; pure software companies often hit 20-30%.
How do I improve gross margin?⌄
Four main levers: (1) Raise prices - most direct impact, (2) Reduce COGS through supplier negotiation or efficiency, (3) Shift product mix toward higher-margin items, (4) Reduce waste and improve production efficiency.
What is operating leverage?⌄
Operating leverage describes how fixed vs variable costs affect profit scaling. High fixed costs mean that as revenue grows, gross profit grows faster (once fixed costs are covered). Software businesses have very high operating leverage - once built, selling one more subscription costs almost nothing.

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