Gross Margin Calculator
Revenue minus the cost of delivering it — the number that funds your entire business.
Your numbers
Your result
- Total cost of goods sold
- $61,000
- Gross profit
- $39,000
- Gross margin
- 39%
- Equivalent markup on costThe markup you'd have to apply to cost to produce this margin.
- 63.9%
- Value of one margin pointWhat 1% of margin is worth at this revenue.
- $1,000
39.0% gross margin
Workable but tight. At this level, overhead growth eats profit fast. Look at pricing first, then at unbilled labor hours and material waste.
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What this number actually tells you
Gross margin is the most important number most small business owners can't quote from memory. It's what's left after you pay the direct cost of delivering the work — materials, field labor, subs, direct job costs — and before any office, marketing, insurance or owner pay.
It matters because it's the pool everything else comes out of. Overhead, growth, your salary and net profit all live inside gross profit. A business with a 25% gross margin has to run four dollars of revenue through the door to cover one dollar of overhead. At 50%, it takes two.
The most common error here is leaving labor out of cost of goods sold. If your crew's wages, payroll taxes and workers comp aren't in the number, your gross margin is fiction.
How the math works
- 01Cost of goods sold (COGS) = materials + direct labor (with payroll burden) + subcontractors + other direct job costs.
- 02Gross profit = revenue − COGS.
- 03Gross margin % = gross profit ÷ revenue × 100.
- 04Markup % on cost = gross profit ÷ COGS × 100. Margin and markup are not the same number — a 50% markup produces a 33.3% margin.
What to do with the answer
- Calculate it by job type, not just company-wide. Blended margins hide the work that loses money.
- Include payroll taxes, workers comp and benefits in direct labor. Raw wages understate labor cost by roughly 15–30%.
- Track it monthly. Margin erosion shows up months before it shows up in your bank account.
- Use the margin-point value above when deciding whether a discount is worth it. A 5% discount on a 40% margin job gives away 12.5% of your gross profit.
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Schedule Your Growth Assessment Or call (737) 888-0415Questions owners ask about this
What is a good gross margin for a service business?
For most established trade and service businesses, 40–55% is healthy, 33–40% is workable, and below 30% makes it very hard to fund overhead and net profit. Product-heavy and equipment-heavy work runs lower; labor-only services run higher.
Does labor go in cost of goods sold or overhead?
Labor that produces the work — technicians, crews, installers — belongs in COGS. Salaried office staff, managers not on jobs, and administrative payroll belong in overhead. Splitting them correctly is what makes gross margin usable.
What's the difference between gross margin and net margin?
Gross margin is revenue minus the direct cost of delivering the work. Net margin is what's left after overhead, marketing, insurance, admin payroll and owner compensation. You need a healthy gross margin to have any net margin at all.
Use these next
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Markup vs. Margin Calculator
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Build a price from burdened labor, materials, overhead recovery and the margin you need.
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Break-Even Calculator
The revenue where you stop losing money — per year, per month, per day, per job.