--- title: "Gross margin: definition, formula and example" description: "Revenue minus the cost of the goods sold, as a share of revenue. The accounting margin: it leaves out shipping, fulfilment and payment costs." url: https://offersuite.io/glossary/gross-margin updated: 2026-10-13 --- # Gross margin Revenue minus the cost of the goods sold, as a share of revenue. The accounting margin: it leaves out shipping, fulfilment and payment costs. ## In plain words Gross margin is revenue minus the cost of goods sold, usually stated as a percentage of revenue. It is the margin on an income statement, and the one most brands quote for a product. It answers a pricing question, whether a product is priced well above what it costs to make or buy. It does not answer an offer question, because the costs an offer moves, such as shipping, picks and card fees, sit below the gross margin line. ## Formula - Gross margin = revenue − cost of goods sold - Gross margin % = gross margin ÷ revenue ## Worked example The same $40.00 bag with a $12.00 unit cost has a gross margin of $28.00, or 70.0%. The engine gives that figure when every cost except the product's is set to zero. With fulfilment, shipping, fees and the refund reserve included, the same order keeps $15.36 (38.4%). That is its contribution margin. ### The example order A $40.00 bag of coffee, shipped free, every cost counted Revenue $40.00 to contribution margin $15.36 (38.4%) Revenue $40.00 Cost of goods −$12.00 Pick and pack −$1.18 Packaging −$0.50 Shipping label −$7.50 Card fee per order −$0.30 Refunds −$2.00 Card processing −$1.16 Contribution margin $15.36 2 declared kinds cost nothing on this option Computed by the margin engine in Offer Suite's own code, in whole cents, from a $40.00 bag of coffee with a $12.00 unit cost. ## Gross margin is not what an offer earns A free-shipping offer, a gift or a bundle can move contribution margin a lot and gross margin not at all. Brands that set discounts from gross margin tend to give away more than they meant to. A 30% discount looks safe against a 70% gross margin and can wipe out most of a 38% contribution margin. ## Using it Use gross margin to check a product's price against its cost, and to compare products with each other. Stop using it once the question is about an offer: a discount, a bundle, a gift or a shipping rule. At that point switch to contribution margin per order, and keep gross margin only as a ceiling on what any offer could earn. ## Related - [Glossary **Glossary of offer economics** The terms behind offer profit, defined plainly with their formulas and a worked number: contribution margin, profit per visitor, break-even lift and more.](https://offersuite.io/glossary) - [Calculator **Bundle pricing calculator: shipping, subscriptions** Price a bundle against a single unit, one-time and subscribed, with the shipping and pick costs it saves, and the conversion it can lose and still earn as much.](https://offersuite.io/calculators/bundle-pricing) - [Calculator **Gift with purchase profit calculator** What a free gift costs per order, after its unit cost, its extra pick and its handling, and how much conversion it has to add to pay for itself.](https://offersuite.io/calculators/gift-with-purchase-profit) - [Glossary **Contribution margin: definition and formula** What an order keeps after every cost that grows with it: product cost, fulfilment, shipping, card fees and refunds. The number an offer should be judged on.](https://offersuite.io/glossary/contribution-margin) - [Glossary **Cost of goods sold (COGS): definition and formula** What the units you sold cost you to make or buy. In an offer calculation it is charged per unit, gifts included, at the cost in effect on the order's date.](https://offersuite.io/glossary/cost-of-goods-sold) - [Glossary **Landed cost: definition, formula and example** A unit's full cost on your shelf: the supplier's price plus inbound freight, duties and brokerage. The unit cost an offer should be priced on.](https://offersuite.io/glossary/landed-cost)