---
title: "What is gross margin? Formula | Product Metrics"
description: "Gross margin is the share of revenue left after the cost of goods sold. Formula, a worked month, and why it is not the margin to set ad targets from."
canonical: "https://www.productmetrics.io/glossary/gross-margin"
pageType: article
language: en
publisher: "Product Metrics"
author: "Berend Vrakking"
datePublished: 2026-10-07
dateModified: 2026-10-07
---

> Content index: https://www.productmetrics.io/llms.txt

# Gross margin

Gross margin is the share of revenue left after subtracting the cost of goods sold, shown as a percentage.

## Formula

`Gross margin % = (revenue − cost of goods sold) ÷ revenue`

Revenue minus cost of goods sold is gross profit, in euros. Gross margin is that gross profit as a percentage of revenue. What counts as cost of goods sold depends on your accounting rules.

## Example

One month, €50,000.00 of revenue:

| Step | Value |
| --- | --- |
| Revenue (excl. VAT) | €50,000.00 |
| Cost of goods sold | €30,000.00 |
| Gross profit (€50,000.00 − €30,000.00) | €20,000.00 |
| Gross margin (€20,000.00 ÷ €50,000.00) | 40% |

Of every €1.00 of revenue, €0.40 is left after the cost of goods sold. Illustrative data.

## For one product, and for an account

Per product, gross margin is price minus product cost, divided by price. The shop figure blends every product’s gross margin, weighted by how much each sells, so one bestseller can carry the whole number.

Gross margin stops at product cost. Shipping, payment fees and returns come off later, in contribution margin. A product that sells for €100.00 with €45.00 of product cost has a gross margin of 55% and a break-even ROAS of 1 ÷ 0.55 = 1.82. If shipping, fees and packaging take another €10.00, the contribution margin is 45% and the break-even ROAS is 2.22. Illustrative data.

## Common mistake

Setting a ROAS target from gross margin. It ignores shipping, payment fees and returns, so the target comes out too low and products that lose money pass as profitable.

## Questions

### What does a 40% gross margin mean?

The products themselves took €0.60 of every €1.00 of revenue, leaving €0.40. That €0.40 is not profit yet: ads, shipping, fees and fixed costs still come out of it.

### What is the difference between gross profit and gross margin?

Gross profit is an amount: revenue minus cost of goods sold, such as €20,000.00. Gross margin is that amount as a percentage of revenue, such as 40%.

### What is the difference between gross margin and net margin?

Gross margin takes off only the cost of goods sold. Net margin takes off all other costs as well, such as ad spend, shipping, staff and rent, so it is lower.

## Keep reading

- [Cost of goods sold](https://www.productmetrics.io/glossary/cost-of-goods-sold): The cost that gross margin subtracts from revenue.
- [Contribution margin](https://www.productmetrics.io/glossary/contribution-margin): The margin after shipping, fees and returns too, used for break-even ROAS.
- [Markup vs margin](https://www.productmetrics.io/glossary/markup-vs-margin): Do not mix margin up with markup.
- [Break-even ROAS calculator](https://www.productmetrics.io/break-even-roas-calculator): Find the return each product needs to break even.
- [Markup and margin calculator](https://www.productmetrics.io/margin-calculator): Work out margin, markup and selling price from cost.
- [What is a good ROAS?](https://www.productmetrics.io/blog/what-is-a-good-roas): Why 1 ÷ gross margin is only the lowest possible break-even ROAS.

---

Written by Berend Vrakking, founder of Product Metrics. Last updated 2026-10-07.

HTML version: https://www.productmetrics.io/glossary/gross-margin