# How to Calculate Gross Margin Percentage

The gross margin percentage is one of the many accounting terms a business needs to understand. Firstly it is important to realize that gross margin is the real income a business earns by selling its products. Specifically it is the revenue left after deducting the cost of sales.

Gross margin = Revenue – Cost of sales

In the financial projections template gross margin is shown on the income statement. Furthermore it is calculated as a percentage of forecast revenue using the gross margin percentage.

Gross margin = Revenue x Gross margin %

Additionally we have created a free gross margin calculator showing how to carry out a gross margin calculation. The calculator is available for download at the link below.

## Gross Margin Percent Calculation

It is important to realize that the gross margin percentage required for use in the business plan is that for the business as a whole. For an existing business, this can be obtained from historical data and is given by the gross margin percentage formula:

Gross margin % = (Revenue – Cost of sales) / Revenue

For a new business it may be possible to estimate the gross margin by looking at industry data. Additionally published accounts of comparative businesses in the same industry can provide an estimate.

An alternative approach is to calculate the gross margin for each of the businesses products individually. The individual margins are then used to provide a weighted average gross margin % based on estimated sales levels for each product. This approach is obviously easier when there are only a few products, but can be utilized by grouping products into categories.

The formula to calculate profit margin for a product is as follows:

Gross margin % = (Selling price – Product Cost) / Selling price

To assist you in calculating a gross margin percentage, we have provided a free gross margin % calculator, available at the link below.

This calculator allows the product cost to be built up from its cost components and, by entering a retail price, will calculate the gross margin percentage and also the markup percentage for each product or product group.

If there are a number of products, the individual gross margin percentages calculated for each product, can be used to calculate the overall gross margin for the business by using our free weighted average gross margin calculator, available at the download link below,

## Template Margin Definition

The gross margin definition for use in the financial projections template is the difference between the revenue and the cost of sales.

Furthermore at a product level it represents the difference between the selling price of your product and its purchase cost or its manufacturing cost.

Gross margin = Selling price – Purchase cost

## Industry Specific Gross Margin Percentage Templates

The gross margin percentage for your business will depend on the type of industry in which it operates. Consequently we have created gross margin templates for a number of industries, some of which are listed below:

### Gross Margin Projection Templates

Additionally more templates are available in our Business Templates Section, and more will be added in the future. If your industry is not listed contact us and let us know, and we’ll try to help.

## What’s the Next Step?

The next step in producing a five year financial projection for your business model using our financial projections template is to learn how to forecast the operating expenses for your business.

This is part of the How to Create Financial Projections Guide a series of posts on how our template is used to produce simple financial projections for a business model.