What belongs in COGS?

Unit cost, inbound freight, duties, packaging, and any direct labor to assemble or pack. Do not include ad spend, salaries, software, or rent. Those are operating costs and sit below gross margin on the P&L.

How is gross margin different from net margin?

Gross margin is revenue minus COGS. Net margin is what remains after every expense including ads, salaries, fees, and taxes. Gross margin tells you whether your product is viable. Net margin tells you whether the whole business is viable.

Should I use gross or net revenue?

Net revenue. Always subtract discounts, refunds, and returns before running the calculation. If you use gross revenue you will overstate margin and under-price future products.

How often should I recalculate this?

Monthly at the blended level and quarterly at the SKU level. Supplier price changes, freight swings, and promotional discounting all move the number. Brands that check this once a year get surprised when they run out of cash.

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Gross Margin Calculator

Calculate gross margin dollars and percent from revenue and COGS. This is the first number every investor, operator, and paid media buyer checks. Know it for each SKU and your whole store.

Gross Margin = (Revenue − COGS) ÷ Revenue × 100

Revenue ($)

Cost of goods sold ($)

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Gross margin is the ceiling for everything else

You cannot out-market weak gross margin. Before scaling spend, make sure your pricing, creative, and product mix all push margin up. MagicFit helps you test new hooks weekly so you can lift conversion and pricing power.

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How to use this Gross Margin Calculator

Gross margin is the percentage of revenue left after the direct cost of making and landing a product. Everything else (ad spend, salaries, software, rent) comes out of this slice. If gross margin is 40 percent, you only have 40 cents on every dollar to run the entire business. If it is 70 percent, you have room to make mistakes.

Calculate gross margin at two levels. First, blended across the whole business to track trend. Second, per SKU so you know which products carry the brand and which ones drain it. A 65 percent blended margin can hide a hero SKU at 80 percent and a dog at 30 percent. Cut the dog, promote the hero, and the whole business improves without doing anything else.

Be honest about what goes into COGS. Inbound freight, duties, packaging, and 3PL inbound fees all belong in there. If you only count product unit cost, you will overstate margin by 5 to 10 points, which is the difference between a healthy business and a failing one.

Frequently Asked Questions

Target 60 to 70 percent for most DTC brands. Apparel and beauty can hit 70 to 80 percent. Supplements often clear 75 percent. Hardware and food tend to sit at 40 to 55 percent, which is why those categories need higher AOV or subscription to work with paid ads.

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