A-Z Popular Blog Marketing Search »
Related Guides
Financial Metrics
Key Concepts
Financial Metrics
Financial Controls

Financial Industry

5 Examples of Gross Margin

 , updated on
A gross margin is the difference between the price and cost of a sale expressed as a percentage of the price. This is essentially the portion of the price that is profit before overhead expenses. The following are illustrative examples of a gross margin.

Unit Margin

Unit margin is the gross profit portion of a price expressed as a dollar amount. For example, an electronics accessory that is sold for $10 with a unit cost of $6 has the following unit margin.
Unit Margin = price - unit cost
= $10 - $6
= $4

Gross Margin

Gross margin is the unit margin expressed as a percentage of price. For example, a table that is sold for $700 that cost $550 to construct, sell and deliver has the following gross margin.
Gross Margin = ((price - unit cost) / price) × 100
= (($700 - $550) / 700) × 100
= 21.4%

Total Gross Margin

Gross margin is often calculated for all sales achieved by a firm, sales team or salesperson. For example, a firm with revenue of $55 million and cost of goods sold of $17 million has the following total gross margin.
Gross Margin = ((revenue - cost of goods sold) / revenue) × 100
= (($55 million - $17 million) / $55 million) × 100
= 69%

Contribution Margin

Unit costs change as you scale up and down. As an extreme example, if an assembly line produces one refrigerator, that refrigerator can be viewed as costing tens of millions of dollars as the entire price of the assembly line can be included in its unit cost. As a firm sells more refrigerators, unit costs fall until the assembly line reaches capacity. Contribution margin is a way of modeling the profitability of different production levels based on variable unit costs. This is used to make production decisions. For example, a refrigerator factory that is producing 10,000 units a month has a variable cost for one more unit of $300 with a sales price of $1200. At this point the contribution margin is calculated as follows.
Contribution Margin = ((revenue - variable unit cost) / revenue) × 100
= (($1200 - $300) / $1200) × 100)
= 75%
If the factory is producing 20,000 units a month the unit cost jumps to $1100 as the firm needs to contract out assembly and transport the units from another country with tariffs at the border. At this point the contribution margin is as follows.
Contribution Margin = ((revenue - variable unit cost) / revenue) × 100
= (($1200 - $1100) / $1200) * 100)
= 8.3%

Reverse Calculation for Pricing

It is common to start with a target gross margin and a cost to calculate a price. For example, a home builder sets its initial price at a 40% gross margin and allows the price to be negotiated down depending on market conditions. A particular house cost $240,000 to build such that a price with a 40% margin can be calculated as follows.
Price = cost + (cost × gross margin)
= $240,000 + ($240,000 × 0.40)
= $336,000


Unit cost includes any cost can can be attributed to the sale of a unit of a product or service including manufacturing, distribution, service delivery and marketing costs.
Cost of goods sold is the aggregate of all unit costs that may be calculated at the level of a firm. Cost of goods sold is carefully matched to its corresponding revenue.
Overview: Gross Margin
The gross profit of revenue expressed as a percentage of revenue.
Related Concepts

Financial Metrics

This is the complete list of articles we have written about financial metrics.
Gross Margin
Net Present Value
New Revenue Rate
Payback Period
Run Rate
If you enjoyed this page, please consider bookmarking Simplicable.

Marketing Metrics

A list of common ways to measure marketing results.

Marketing Efficiency

An overview of marketing efficiency with calculation examples.

Active Customers

The definition of active customers with examples.

Market Share Analysis

A guide to market share analysis with examples.

Annual Recurring Revenue

The definition of annual recurring revenue with calculation examples.

Win Rate

The definition of win rate with calculation examples for sales proposals, sales revenue and advertising bids.

Marketing Goals

Common types of measurable marketing goals with examples.

Brand Preference

An overview of brand preference.

Market Research Analysis

An overview of market research analysis with examples.

Marketing Analysis

An overview of marketing analysis with examples.

Market Sizing

The common types of market sizing with examples.


A few examples of benchmarking.

Revenue Per Employee

An overview of revenue per employee including how it is calculated and used.

Monthly Recurring Revenue

A definition of monthly recurring revenue (MRR) with examples.

Run Rate

The definition of run rate with calculation examples.
The most popular articles on Simplicable in the past day.

New Articles

Recent posts or updates on Simplicable.
Site Map