How to Find Gross Margin

The gross margin is a business metric that shows how much of a company's revenues are profits rather than costs. For some companies, the gross margin shows how efficiently a company runs because a higher gross margin can translate to a higher profit margin. The gross margin is reported as a percentage. In order to calculate the gross margin, you need to know the company's revenues and the cost of goods sold.

Instructions

Things You'll Need:

• Calculator
• Financial reports

1. Step 1

   Determine the total revenue of the company.

2. Step 2

   Determine the cost of goods sold (COGS). The COGS only include the cost of producing the goods rather than the cost of transporting or selling them.

3. Step 3

   Subtract the COGS from the total revenue. For example, if a company had $200,000 in revenue and $160,000 in COGS, the result would be $40,000.

4. Step 4

   Divide the result from Step 3 by the revenue to determine the gross margin. For example, if the number from Step 3 was $40,000 and the revenue was $200,000, the gross margin would be 0.20, or 20 percent.