How to calculate gross margin before setting a selling price
A price can look profitable while still leaving too little gross margin once direct and other costs are included. Start with the numbers you can verify and keep the assumptions visible.
Start with comparable units
Use the same unit and time basis for selling price, direct cost and other variable costs. Mixing per-item and monthly values makes the result misleading.
Calculate gross profit first
Gross profit = selling price − direct cost − other included costs. Gross margin % = gross profit ÷ selling price × 100.
Test the price, not only the margin
Change one assumption at a time and compare the resulting gross profit and margin. Keep a conservative case for uncertain costs.
Record the assumptions
Save the input values used for the quote so the calculation can be checked when supplier cost or scope changes.
A local calculator for selling price, cost, gross profit and gross-margin checks.
Open the Margin & Cost Ratio Calculator