Gross margin calculator

Gross margin is the share of revenue left after the direct cost of delivering it: (revenue − cost of sales) ÷ revenue. It is what pays for everything else.

The formula

Gross margin = (Revenue − cost of sales) ÷ revenue × 100

Worked example: 70.0%

The example is a UK software company in one month: £50,000 of revenue excluding VAT, 400 customers and £180,000 in the bank.

£50,000 − £15,000 = £35,000 gross profit
£35,000 ÷ £50,000 = 70.0%

Try it with your numbers

Work out your gross margin

It starts on the example. Replace any figure with your own; nothing you type leaves your browser.

Your business numbers

Start with any one figure. Each one you add works out more below. Your numbers are kept in this browser only.

What this calculation uses

Turnover (needed)

Everything you invoiced in the period.

My turnover includes VAT

20%5%None

Cost of sales (needed)

Costs that grow with each sale: materials, hosting, payment fees.

Add more of your numbers

Open a group to fill it in. Everything you add shows up in the list below the calculator.

Sales and VAT

MonthQuarterYear

VAT you reclaim on costs

Input VAT on your purchases in the period.

Of which recurring

Subscriptions and contracts, excluding VAT.

Value of orders through your platform

Marketplaces only: what buyers paid in total.

Costs

Staff costs

Salaries, employer National Insurance, pensions, freelancers.

Sales and marketing

Ads, sales salaries and tools.

Other running costs

Rent, software, insurance, admin.

Depreciation and amortisation

From your accounts. 0 if you have none.

Interest paid

Corporation Tax

For the period, if you pay any.

Equipment and other capital spending

Things that last more than a year.

Customers and orders

Customers at the start

New customers

Customers lost

Number of orders

Or invoices, for a service business.

Recurring revenue over one month

MRR at the start of the month

Upgrades

Extra MRR from existing customers.

Downgrades

MRR lost from customers who left

Growth

Revenue this month

Revenue last month

Revenue this quarter

Revenue last quarter

Revenue this year

Revenue last year

Cash

Cash in the bank

Cash received from customers

In the period, not what you invoiced.

Cash paid out for running costs

In the period, not counting equipment.

Balance sheet

Everything the company owns

Cash, equipment, money owed to you.

Everything it owes

Loans, bills, tax due.

Team

Hours your team works a week

Everyone added together.

Full-time hours a week

One investment or campaign

What you spent

On a campaign, a hire or a piece of kit.

What it brought back

Extra gross profit it produced.

Your gross margin

70.0%

£50,000 − £15,000 = £35,000 gross profit
£35,000 ÷ £50,000 = 70.0%

Formula: (Revenue − cost of sales) ÷ revenue × 100.

Gross profit: £35,000; a month

How to read your result

Software businesses tend to have higher gross margins than businesses that make physical products, so compare yours with companies like you.

Watch out for

Costs that grow with each sale, such as hosting, materials and payment fees, go in cost of sales. Office rent belongs in operating costs.

Last checked 24 October 2026. Estimates only, not financial, tax or legal advice: check your accounts and documents, and take advice before you act. More terms in the startup glossary.