How to Calculate Sales Revenue Using a Gross Margin

by Isobel Phillips; Updated September 26, 2017
Cost of goods sold is an important business metric.

Gross margin represents the percentage of the selling price or sales revenue that is gross profit. For a single item, gross profit is selling price minus direct costs; for the business, gross profit is equal to sales revenue less the cost of goods sold. If you know the total costs and the gross margin you want to achieve, you can calculate the sales revenue you need.

Step 1

Calculate the cost of goods sold of your products. The formula for calculating sales revenue is: SR = CoGS / (1 - GM%) or Sales revenue is equal to CoGS divided by 1 minus the gross margin percentage.

CoGS does not include overhead or running costs. Calculate CoGS by adding the value of your opening inventory and your direct purchases and direct labor costs and deducting the value of your closing inventory. For this example, CoGS is $40,000.

Step 2

Calculate the decimal value of your gross margin percentage. For example, if your gross margin is 60 percent, meaning 60 percent of your sales revenue is profit, divide 60 by 100 to get the result 0.60.

Step 3

Subtract the gross margin decimal from 1. 1 minus 0.60 equals 0.40.

Step 4

Divide the value of CoGS by 0.40 to obtain sales revenue. For example $40,000 divided by 0.40 equals $100,000 and this represents the value of your sales revenue.

About the Author

Isobel Phillips has been writing technical documentation, marketing and educational resources since 1980. She also writes on personal development for the website UnleashYourGrowth. Phillips is a qualified accountant, has lectured in accounting, math, English and information technology and holds a Bachelor of Arts honors degree in English from the University of Leeds.

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