Your situation
Two numbers, one answer.
Capped at 100% — gross margin can't exceed revenue. How do I calculate this?
Must be lower than your current margin — otherwise you'd sell at a loss.
The full picture
Volume increase needed to break even on total gross profit.
| % Price decrease |
Current gross profit % | |||||||
|---|---|---|---|---|---|---|---|---|
Click any cell to load that scenario above.
What this means for your business
Plain-language read of the numbers above.
How to calculate gross profit margin
The 60-second version.
The formula
Gross profit margin is the share of every dollar of revenue you keep after the direct cost of delivering the product or service — but before overheads, marketing, salaries, and tax.
COGS (Cost of Goods Sold) means only the costs that scale directly with each unit sold: raw materials, manufacturing labour, payment processing, software hosting per customer, freight. It does not include rent, head office payroll, sales commissions, or marketing.
A worked example
You sell a B2B SaaS subscription for $100/month. The direct costs per customer per month are:
| Line | Amount |
|---|---|
| Revenue per customer | $100 |
| Hosting & infra | −$12 |
| Payment processing (3%) | −$3 |
| Customer support (allocated) | −$15 |
| Gross profit | $70 |
Gross margin = $70 ÷ $100 × 100 = 70%.
What to include in COGS (and what to leave out)
Include — costs that move with each additional unit/customer:
- Raw materials, components, packaging
- Manufacturing/production labour
- Cloud hosting, third-party APIs charged per usage
- Payment processing fees, marketplace commissions
- Inbound and outbound freight tied to the sale
Exclude — costs that don't change when you sell one more:
- Office rent, head office salaries
- Marketing and sales commissions (these belong below gross margin)
- R&D, product development
- General admin, legal, accounting
If you're not sure where to draw the line, ask: "if we sold zero this month, would this cost still be there?" If yes, it's not COGS.
Why this calculator uses gross margin, not net margin
Pricing decisions affect contribution per unit, which is what gross margin measures. Net margin includes fixed overheads that don't change when you cut the price by 5%.
If you use net margin in this calculator, you'll over-estimate how much volume you need (and almost certainly conclude every cut is a bad idea — including the ones that aren't).
Rule of thumb: price decisions → gross margin. Cost decisions → net margin.