Gross Margin Calculator (GM%)
Percentage of revenue left after subtracting the cost of goods sold (COGS).
The cleanest signal of product profitability. If GM% drops, every downstream cost — payroll, rent, marketing — gets harder to cover.
- Formula
- (Revenue − COGS) ÷ Revenue × 100
- Benchmark
- Apparel 50–60%, grocery 25–30%, luxury 65%+
Worked example
- Revenue
- 10,000 SAR
- COGS
- 4,000 SAR
- Result
- 60.0%
- Note
- Healthy
How to read it
Gross margin is the share of revenue left after the cost of the goods. The defaults — SAR 10,000 of revenue against SAR 4,000 of COGS — give 60%, meaning 60 halalas of every riyal remains to cover rent, payroll, marketing and profit. Read it against your category rather than against the label the calculator shows: that label is a generic rule of thumb, and a grocery business at 27% is performing normally even though the label reads Watch, while an apparel business at 27% is in trouble. Margin percentage also says nothing about speed — a high margin that sits on the shelf earns less cash than a thinner one that moves, which is what GMROI exists to settle.
Common mistake
Calculating it on the VAT-inclusive price. A SAR 115 shelf price against a SAR 40 cost is not a 65.2% margin; strip the 15% VAT first and the net price is SAR 100, so the margin is 60%. Five points of imaginary margin across a whole range is enough to make a losing assortment look healthy. The second error is an incomplete COGS: inbound freight, customs and inspection costs belong in it, and supplier rebates belong against it. Leaving them out flatters every line you buy from abroad.
What to do about it
There are only three levers — cost price, selling price and mix — and mix is usually the fastest. Shifting the sales weight toward higher-margin lines moves the blended margin without changing a single price or renegotiating a single contract. Cost comes next, and price last, because a price rise is the one the customer notices. Before any of them, check the markdown line: if margin fell while markdowns rose, the problem is what was bought rather than what it was priced at, and no pricing change will fix it.
Questions
What is a good gross margin in retail?
It depends entirely on the format. Apparel typically runs 50–60%, grocery 25–30%, and luxury 65% and above. A grocery business comparing itself to an apparel benchmark will conclude it is failing when it is not.
What is the difference between gross margin and gross profit?
Gross profit is the riyals, gross margin is the percentage. Range and pricing decisions use the percentage because it compares across items of different prices; decisions about rent, payroll and whether a store pays its way use the riyals, because those bills are paid in riyals.
Should VAT be included in revenue?
No. Revenue is reported net of VAT — the tax is collected on ZATCA's behalf and passed on, so it was never income. Including it inflates both revenue and margin.