Profit Geeks

Free gross margin calculator · No signup

Gross Margin Calculator.

Two numbers in, your gross margin out, plus the break-even ROAS your business actually needs from any paid acquisition campaign. The number most agencies do not show you because it makes their ROAS targets look generous.

$

Total revenue for the period. Use the same period for both inputs.

$

Direct cost of producing or sourcing what you sold. Includes inventory cost and direct fulfilment; excludes salaries, rent, marketing, and overhead.

Result

Gross profit

$55,000

Gross margin

55.0%

Markup on cost

122.2%

Markup applied to COGS to reach the sale price.

Break-even ROAS

1.82x

Lowest ROAS that clears your margin (excluding overhead).

Reading the verdict

A 55.0% gross margin gives you genuine room. Break-even ROAS is a comfortable 1.82x; the constraint on scale is usually channel saturation, not unit economics.

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How gross margin works

The formula.

Gross margin = (revenue − COGS) ÷ revenue. Expressed as a percentage. A $100,000 revenue line with $45,000 in COGS returns a 55 percent gross margin.

Excludes overhead (salaries, rent, marketing, software). For contribution margin including overhead, subtract overhead as a percentage of revenue from the gross margin number.

Why break-even ROAS depends on it.

Break-even ROAS = 1 ÷ gross margin. A 50 percent margin business breaks even at a 2.0x ROAS. A 25 percent margin business needs a 4.0x ROAS just to cover product cost. Anything below break-even is a cost centre regardless of scale.

Frequently asked

Six questions about gross margin and break-even ROAS.

How is gross margin calculated?

Gross margin = (revenue − cost of goods sold) ÷ revenue, expressed as a percentage. $100,000 in revenue with $45,000 COGS returns a 55 percent gross margin. The calculator on this page also returns gross profit, markup on cost, and the break-even ROAS your margin requires.

What is a good gross margin?

Depends on the category. Direct-to-consumer ecommerce often runs 40 to 70 percent. Mid-margin services and trades sit around 30 to 50 percent. SaaS and digital products are typically 70 to 90 percent. The number that matters is whether the margin is high enough to clear overhead and still leave room for paid acquisition.

What is the difference between gross margin and net margin?

Gross margin only deducts COGS (the direct cost of producing or sourcing what you sold). Net margin deducts all costs including overhead, salaries, rent, marketing, and tax. For paid acquisition decisions, gross margin is the right number for setting break-even ROAS targets; net margin is the right number for the P&L.

What is markup on cost vs gross margin?

Markup is the percentage added to COGS to reach the sale price. A $45 cost item sold for $100 has a $55 markup, which is a 122 percent markup on cost but a 55 percent gross margin. The two numbers describe the same transaction from different angles. The calculator returns both.

Why does break-even ROAS depend on gross margin?

Because every additional dollar of revenue from ads only contributes the gross-margin fraction of itself toward covering the ad spend. A 50 percent margin business needs a 2.0x ROAS to break even on COGS alone (1 ÷ 0.5 = 2.0). A 25 percent margin business needs 4.0x. Anything below the break-even number is a cost centre even if the dashboard reports a positive ROAS.

Should I use my average gross margin or the margin on the product I'm advertising?

Use the margin on the product or category you are actively advertising, weighted by mix if the campaign drives a basket. Average company-wide margin can be misleading if your ads push specific products with margins that differ materially from the average.