Gross Margin

Gross margin sets the budget for shipping, fulfillment, marketing, and overhead. Calculate it with landed cost, not factory cost, or it will be overstated.

Gross margin % = (net revenue − COGS) ÷ net revenue × 100

What is the difference between gross margin and markup?

Gross margin divides profit by the selling price, while markup divides profit by the cost. An item that costs $40 and sells for $100 has a 60% gross margin but a 150% markup.

• Cost of Goods SoldThe direct cost of the inventory a business sold during a period, typically including product cost, inbound freight, duties, and other landed costs, but not outbound shipping or marketing.
• Contribution MarginRevenue minus all variable costs of a sale, such as product cost, shipping, fulfillment, payment processing, and often marketing, showing what each order contributes toward fixed costs and profit.
• Gross Margin Return on InvestmentA ratio showing how many dollars of gross margin a business earns for each dollar invested in inventory, measured at cost over a period.
• Landed CostThe total cost of getting a product to your warehouse ready to sell: purchase price plus freight, insurance, duties, tariffs, brokerage, and handling.