How to Calculate the Gross Margin in Dollars

by Carter McBride; Updated September 26, 2017
Calculating gross margin

Gross margin is the amount of revenue a company retains after production costs. Production costs are the firm's cost of goods sold. Firms often express gross margin as a percentage of revenue. Managers use gross margin to determine how much revenue a product will generate above the product's production costs and as a starting point on where to set prices to obtain a desired profit.

Step 1

Determine the firm's revenue and cost of goods sold. These will often be the first two lines on the firm's income statements. For example, Firm A had revenue of $200,000. The firm's cost of goods sold for the year was $125,000.

Step 2

Subtract the firm's cost of goods sold from the firm's revenue to calculate the gross margin. In the example, $200,000 minus $125,000 equals a $75,000 gross margin.

Step 3

Divide the gross margin by revenue to calculate gross margin percentage. In the example, $75,000 divided by $200,000 which equals a gross margin percentage of 37.5 percent.

About the Author

Carter McBride started writing in 2007 with CMBA's IP section. He has written for Bureau of National Affairs, Inc and various websites. He received a CALI Award for The Actual Impact of MasterCard's Initial Public Offering in 2008. McBride is an attorney with a Juris Doctor from Case Western Reserve University and a Master of Science in accounting from the University of Connecticut.

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