Gross vs Net Margin Calculator
Enter revenue and costs once to see gross margin, operating margin and net margin side by side.
Quick answer: Gross margin is revenue minus cost of goods sold, divided by revenue. Net margin is net profit after every expense, including overheads, interest and tax, divided by revenue. A store with $480,000 revenue and $288,000 COGS has a 40% gross margin, but only a 10% net margin after $144,000 of other costs.
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Use your actual figures where available. The output is an educational estimate based on the assumptions below.
Displayed amounts are rounded to two decimal places. Keep the same currency and time period across related inputs.
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How this calculator works
The three margins peel costs off revenue one layer at a time. Gross margin removes only the direct cost of goods sold. Operating margin also removes the overheads of running the business. Net margin removes everything else, including interest and tax. All three divide by the same revenue, so you can compare them directly. The U.S. SEC's beginners' guide to financial statements uses the same layers.
The formulas
Operating margin = (gross profit − operating expenses) ÷ revenue × 100
Net margin = (operating profit − interest, tax & other) ÷ revenue × 100
Worked examples in US dollars
| Business | Revenue | COGS | Opex | Other | Gross | Operating | Net |
|---|---|---|---|---|---|---|---|
| Online store (year) | $480,000 | $288,000 | $120,000 | $24,000 | 40.00% | 15.00% | 10.00% |
| Agency (year) | $250,000 | $150,000 | $60,000 | $15,000 | 40.00% | 16.00% | 10.00% |
Both businesses keep 40 cents of gross profit per dollar of sales, but only 10 cents ends up as net profit. The gap between gross and operating margin shows how heavy the overheads are.
Common mistakes
- Comparing your gross margin with another company's net margin.
- Putting overheads into COGS, which understates gross margin.
- Mixing a year of revenue with a quarter of costs.
- Confusing margin with markup. Markup divides by cost, not revenue.
Sources
Related calculators
- Profit margin calculator — single margin from revenue and cost
- Markup calculator — price from cost and markup
- Break-even calculator — units needed to cover fixed costs
Related education
Gross margin vs net margin: side by side
| Gross margin | Net margin | |
|---|---|---|
| Formula | (Revenue − COGS) ÷ revenue × 100 | Net profit ÷ revenue × 100 |
| Costs removed | Cost of goods sold only | Everything: COGS, overheads, interest and tax |
| Answers | Is each sale priced above its direct cost? | Does the whole business make money? |
| Example (below) | 40.00% | 10.00% |
Worked example: one income statement, three margins
| Line | Amount | % of revenue |
|---|---|---|
| Revenue | $480,000 | 100.00% |
| − Cost of goods sold | $288,000 | 60.00% |
| Gross profit | $192,000 | 40.00% gross margin |
| − Operating expenses | $120,000 | 25.00% |
| Operating profit | $72,000 | 15.00% operating margin |
| − Interest, tax & other | $24,000 | 5.00% |
| Net profit | $48,000 | 10.00% net margin |
Frequently asked questions
What is the difference between gross and net margin?
Gross margin only subtracts the direct cost of goods sold. Net margin subtracts every cost, including overheads, interest and tax.
What is a good gross margin?
It depends heavily on the industry. Compare with similar businesses and with your own past periods, not with one universal number.
Can net margin be negative?
Yes. If total costs exceed revenue, net profit and net margin are negative.
Where does depreciation go?
Usually in operating expenses, so it affects operating and net margin but not gross margin.
What is the difference between gross margin and net margin?
Gross margin subtracts only the direct cost of goods sold from revenue; net margin subtracts every expense, including overheads, interest and tax. Net margin is therefore lower when those costs exist.
Net vs gross margin: which matters more?
Both. Gross margin shows whether pricing covers direct costs; net margin shows whether the whole business is profitable. A healthy gross margin with a thin net margin points to high overheads.
How do you calculate net margin from gross margin?
Subtract operating expenses, interest, tax and other costs as a percentage of revenue. In the example, 40% gross − 25% opex − 5% other = 10% net margin.
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