Gross margin is also known simply as margin or point margin. Essentially, gross margin is the result that you get from the selling price of a product minus the cost of selling the product divided by the selling price. Selling costs include the materials used to produce the product and any overhead such as manufacturing and equipment costs. This calculation can be converted into a percentage or left in decimal form and referred to as a basis point.

Identify the selling price of the product, good or service (e.g., Jane is selling lemonade for $2.54).

Determine the cost of selling the product, good or service (e.g., if the lemons, sugar, utensils and pitcher cost Jane $2.00, her cost of selling the product is $2.00).

Subtract the selling price from the cost of selling the product. Divide this result by the selling price (e.g. $2.54 - $2.00 = .54; .54 / $2.54 = .21). The result of this calculation represents the point margin (e.g., Jane’s point margin or basis point is .21).

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Anthony Rose has been writing since 2009, covering home improvement, health, business and politics. He holds a Bachelor of Arts in history from Tulane University.