Gross Profit Margin Calculator: Revenue, COGS & Margin

Is a gross profit margin of 40.00% healthy?

On the defaults — $500,000.00 of revenue and $300,000.00 of cost of goods sold — the gross profit margin is 40.00%, the revenue needed for a 50.00% margin is $600,000.00, and the cost of goods sold needed for a 50.00% margin is $250,000.00. The gross profit margin — gross profit divided by revenue — is the gross test: what share of each sales dollar remains after the direct cost of goods sold, before rent, wages, marketing and admin. A margin above 40% is strong for many businesses; grocery stores run around 25% or less; software companies run 70% or more because their direct costs are low. A margin below 20% is thin and leaves little room for rent, wages and marketing. A negative margin means the business sells below cost — with cost of goods sold of $550,000.00 the margin is −10.00%, a loss on every sale, and with cost of goods sold of $750,000.00 the margin is −50.00%. The same margin can mean different things by industry — a grocer and a software company do not buy the same things — so compare within an industry, not across them.

Four things about the model are worth stating plainly. First, the gross profit is the revenue minus the cost of goods sold — $500,000.00 − $300,000.00 = $200,000.00. Second, the gross profit margin is the gross profit divided by the revenue — $200,000.00 ÷ $500,000.00 = 40.00%. Third, the revenue needed at the target is the cost of goods sold divided by one minus the target — $300,000.00 ÷ 0.50 = $600,000.00. And fourth, the cost of goods sold needed at the target is the revenue times one minus the target — $500,000.00 × 0.50 = $250,000.00; all listed in Accuracy & limitations.

The worked example, line by line

Setup: $500,000.00 of revenue, $300,000.00 of cost of goods sold, target margin 50.00%.

Line 1 — the gross profit. The gross profit is $500,000.00 − $300,000.00 = $200,000.00.

Line 2 — the gross profit margin. The gross profit margin is $200,000.00 ÷ $500,000.00 × 100 = 40.00%.

Line 3 — the revenue needed. The revenue needed for a 50.00% margin is $300,000.00 ÷ 0.50 = $600,000.00.

Line 4 — the cost of goods sold needed. The cost of goods sold needed for a 50.00% margin is $500,000.00 × 0.50 = $250,000.00.

Line 5 — the check. 40.00% × $500,000.00 = $200,000.00, the gross profit; and $200,000.00 ÷ 40.00% = $500,000.00, the revenue.

Every branch, checked

Cost of goods sold $250,000: Gross profit $250,000.00; gross profit margin 50.00%; revenue needed for the 50.00% target $500,000.00; cost of goods sold needed for the 50.00% target $250,000.00 — With cost of goods sold of $250,000.00 the margin rises to 50.00% — exactly on the target.

Revenue $1,000,000: Gross profit $700,000.00; gross profit margin 70.00%; revenue needed for the 50.00% target $600,000.00; cost of goods sold needed for the 50.00% target $500,000.00 — With revenue of $1,000,000.00 the margin rises to 70.00% — each dollar of revenue keeps 70 cents.

Revenue $400,000: Gross profit $100,000.00; gross profit margin 25.00%; revenue needed for the 50.00% target $600,000.00; cost of goods sold needed for the 50.00% target $200,000.00 — With revenue of $400,000.00 the margin falls to 25.00% — the grocery-store band.

Cost of goods sold $200,000: Gross profit $300,000.00; gross profit margin 60.00%; revenue needed for the 50.00% target $400,000.00; cost of goods sold needed for the 50.00% target $250,000.00 — With cost of goods sold of $200,000.00 the margin rises to 60.00%.

Revenue $600,000: Gross profit $300,000.00; gross profit margin 50.00%; revenue needed for the 50.00% target $600,000.00; cost of goods sold needed for the 50.00% target $300,000.00 — With revenue of $600,000.00 the margin is 50.00% — exactly on the target.

Cost of goods sold $0: Gross profit $500,000.00; gross profit margin 100.00%; revenue needed for the 50.00% target $0.00; cost of goods sold needed for the 50.00% target $250,000.00 — With no direct cost the margin is 100.00% — every dollar of revenue is gross profit.

Cost of goods sold $550,000: Gross profit −$50,000.00; gross profit margin −10.00%; revenue needed for the 50.00% target $1,100,000.00; cost of goods sold needed for the 50.00% target $250,000.00 — With cost of goods sold of $550,000.00 the margin is −10.00% — selling below cost: the business loses 10 cents on every dollar of revenue.

The reverses, worked backwards

Largest whole-dollar cost of goods sold for the margin to STAY at or above 50.00%: At the displayed $250,000 the figures are Gross profit $250,000.00; gross profit margin 50.00%; revenue needed for the 50.00% target $500,000.00; cost of goods sold needed for the 50.00% target $250,000.00. At the displayed $250,000 the gross profit margin is 50.00%. At $250,001 the cost is $1 over the $250,000 allowed — and the unrounded margin is 49.999800% approximately, which displays as 50.00% after rounding, so $250,000 is the largest whole-dollar cost of goods sold for the margin to stay at or above 50.00%.

Smallest whole-dollar revenue for the margin to reach 50.00%: At the displayed $600,000 the figures are Gross profit $300,000.00; gross profit margin 50.00%; revenue needed for the 50.00% target $600,000.00; cost of goods sold needed for the 50.00% target $300,000.00. At the displayed $600,000 the gross profit margin is 50.00%. At $599,999 the revenue is $1 short of the $600,000 needed — and the unrounded margin is 49.999917% approximately, which displays as 50.00% after rounding, so $600,000 is the smallest whole-dollar revenue for the margin to reach 50.00%.

Largest whole-dollar cost of goods sold for the margin to STAY at or above 40.00%: At the displayed $300,000 the figures are Gross profit $200,000.00; gross profit margin 40.00%; revenue needed for the 40.00% target $500,000.00; cost of goods sold needed for the 40.00% target $300,000.00. At the displayed $300,000 the gross profit margin is 40.00%. At $300,001 the cost is $1 over the $300,000 allowed — and the unrounded margin is 39.999800% approximately, which displays as 40.00% after rounding, so $300,000 is the largest whole-dollar cost of goods sold for the margin to stay at or above 40.00%.

Smallest whole-dollar revenue for the margin to reach 60.00%: At the displayed $750,000 the figures are Gross profit $450,000.00; gross profit margin 60.00%; revenue needed for the 60.00% target $750,000.00; cost of goods sold needed for the 60.00% target $300,000.00. At the displayed $750,000 the gross profit margin is 60.00%. At $749,999 the revenue is $1 short of the $750,000 needed — and the unrounded margin is 59.999947% approximately, which displays as 60.00% after rounding, so $750,000 is the smallest whole-dollar revenue for the margin to reach 60.00%.

Smallest whole-dollar revenue for the margin to reach 25.00%: At the displayed $400,000 the figures are Gross profit $100,000.00; gross profit margin 25.00%; revenue needed for the 25.00% target $400,000.00; cost of goods sold needed for the 25.00% target $300,000.00. At the displayed $400,000 the gross profit margin is 25.00%. At $399,999 the revenue is $1 short of the $400,000 needed — and the unrounded margin is 24.999812% approximately, which displays as 25.00% after rounding, so $400,000 is the smallest whole-dollar revenue for the margin to reach 25.00%.

Largest whole-dollar cost of goods sold for the margin to STAY at or above 70.00%: At the displayed $150,000 the figures are Gross profit $350,000.00; gross profit margin 70.00%; revenue needed for the 70.00% target $500,000.00; cost of goods sold needed for the 70.00% target $150,000.00. At the displayed $150,000 the gross profit margin is 70.00%. At $150,001 the cost is $1 over the $150,000 allowed — and the unrounded margin is 69.999800% approximately, which displays as 70.00% after rounding, so $150,000 is the largest whole-dollar cost of goods sold for the margin to stay at or above 70.00%.

A warning about the neighbours: every neighbour above shows as the target when rounded to two decimals, but its unrounded margin is short of the target. A lender underwriting on the unrounded margin would still say no. The page prints the unrounded neighbour value in full so the rounding does not mislead you.

What the defaults assume

The defaults are $500,000.00 of revenue, $300,000.00 of cost of goods sold and a target margin of 50.00% — Gross profit $200,000.00; gross profit margin 40.00%; revenue needed for the 50.00% target $600,000.00; cost of goods sold needed for the 50.00% target $250,000.00. With Cost of goods sold $250,000, Gross profit $250,000.00; gross profit margin 50.00%; revenue needed for the 50.00% target $500,000.00; cost of goods sold needed for the 50.00% target $250,000.00. With Revenue $1,000,000, Gross profit $700,000.00; gross profit margin 70.00%; revenue needed for the 50.00% target $600,000.00; cost of goods sold needed for the 50.00% target $500,000.00. With Revenue $400,000, Gross profit $100,000.00; gross profit margin 25.00%; revenue needed for the 50.00% target $600,000.00; cost of goods sold needed for the 50.00% target $200,000.00. With Cost of goods sold $200,000, Gross profit $300,000.00; gross profit margin 60.00%; revenue needed for the 50.00% target $400,000.00; cost of goods sold needed for the 50.00% target $250,000.00. With Revenue $600,000, Gross profit $300,000.00; gross profit margin 50.00%; revenue needed for the 50.00% target $600,000.00; cost of goods sold needed for the 50.00% target $300,000.00. With Cost of goods sold $0, Gross profit $500,000.00; gross profit margin 100.00%; revenue needed for the 50.00% target $0.00; cost of goods sold needed for the 50.00% target $250,000.00. With Cost of goods sold $550,000, Gross profit −$50,000.00; gross profit margin −10.00%; revenue needed for the 50.00% target $1,100,000.00; cost of goods sold needed for the 50.00% target $250,000.00. With Revenue $0, Gross profit margin — (undefined: no revenue to divide by); gross profit −$300,000.00; revenue needed for the 50.00% target $600,000.00; cost of goods sold needed for the 50.00% target $0.00. With Cost of goods sold $0, Gross profit $500,000.00; gross profit margin 100.00%; revenue needed for the 50.00% target $0.00; cost of goods sold needed for the 50.00% target $250,000.00. With Revenue $1,500,000, cost of goods sold $1,265,433, Gross profit $234,567.00; gross profit margin 15.64%; revenue needed for the 50.00% target $2,530,866.00; cost of goods sold needed for the 50.00% target $750,000.00. With Cost of goods sold $750,000, Gross profit −$250,000.00; gross profit margin −50.00%; revenue needed for the 50.00% target $1,500,000.00; cost of goods sold needed for the 50.00% target $250,000.00. With Revenue $2,000,000, Gross profit $1,700,000.00; gross profit margin 85.00%; revenue needed for the 50.00% target $600,000.00; cost of goods sold needed for the 50.00% target $1,000,000.00. With Revenue $500,001, Gross profit $200,001.00; gross profit margin 40.00%; revenue needed for the 50.00% target $600,000.00; cost of goods sold needed for the 50.00% target $250,000.50. With Target bars — revenue $500,000, cost of goods sold $300,000, revenue needed at the 25.00% target $400,000.00; at the 60.00% target $750,000.00; cost of goods sold needed at the 25.00% target $375,000.00; at the 60.00% target $200,000.00.

A note on the rounding: with revenue of $1,500,000 and cost of goods sold of $1,265,433 the unrounded gross profit margin is 15.637800, which rounds half-up to 15.64% — the page prints the unrounded value so the rounding does not mislead you. With revenue of $500,001 and cost of goods sold of $300,000 the unrounded gross profit margin is 40.000120, which rounds to 40.00%.

Output · formula · meaning

Who uses this

• The small-business owner checking the year: they learn $200,000.00 of gross profit on $500,000.00 of revenue gives a margin of 40.00% — and they check the $250,000 reverse to see the largest cost of goods sold that still reaches 50.00%.
• The lender sizing a loan: they learn a margin above 40% is strong and below 20% is thin — and they check the $600,000 reverse to see the smallest revenue that reaches 50.00%.
• The owner whose margin slipped to 25.00%: they learn the business is in the grocery-store band — and they check the $400,000 reverse to see the smallest revenue that reaches 25.00%.
• The founder with a 70.00% margin: they learn the business looks like a software company, with low direct costs — and they check the $150,000 reverse to see the largest cost of goods sold that stays at or above 70.00%.

Accuracy & limitations

The math is first-principles: the gross profit is the revenue minus the cost of goods sold, the gross profit margin is the gross profit divided by the revenue, rounded to two decimals half-up; the revenue needed at the target is the cost of goods sold divided by one minus the target; the cost of goods sold needed at the target is the revenue times one minus the target. The reverses are judged on the UNROUNDED margin: a neighbour one dollar short shows as the target when rounded to two decimals, but its unrounded margin is below the target, so it does not meet the bar — the page prints the unrounded neighbour value in full. What the model cannot do is judge the business: the cost of goods sold covers only the direct cost of making or buying what was sold — materials, direct labour and manufacturing overhead — and does NOT include rent, marketing or admin salaries, so a strong gross margin can still leave a weak net margin once those are paid; the same margin means different things by industry, so compare within an industry, not across them; the 40% line is the usual line for many businesses, not a rule, and grocers run happily near 25%; and a margin is not a markup — a 40.00% margin on $500,000 of revenue is a 66.67% markup on $300,000 of cost. Use it to see what each dollar of sales keeps after the direct cost — then read the rest of the statements.

Frequently asked questions