Ask Joey ™ a Question

How to calculate gross margin?

Gross margin is gross profit divided by revenue. You will need to calculate gross profit first, which is revenue less cost of goods sold (step #1 below):

Both gross profit ($) and gross margin (%) are used to assess how much money the company makes on each dollar of revenue after factoring in the cost to make a product. Cost of goods sold includes raw materials, direct labor, and manufacturing overhead.

You might also be interested in...

  • How to calculate Net Working Capital (NWC)?

    Teaches you how to calculate net working capital.

  • As a seller, is it better to have a higher or lower EBITDA multiple?

    Sellers want to maximize the EBITDA multiple. Buyers want the opposite – they want as low of an EBITDA multiple as possible. Business brokers will often use EBITDA multiples from recent transactions in the industry to understand what EBITDA multiple a buyer might be willing to pay when they set the purchase price. The visual […]