Gross margin is revenue minus the cost of goods sold, divided by revenue: (Revenue - COGS) / Revenue x 100. Worked example: you sell 1,000 units at Rs 500, so revenue is Rs 5,00,000; materials, packaging and direct labour cost Rs 300 a unit, so COGS is Rs 3,00,000; gross profit is Rs 2,00,000 and gross margin is 40%. Per unit it is the same: (500 - 300) / 500 = 40%. In Excel, put revenue in B2 and COGS in C2, type =(B2-C2)/B2 and format the cell as a percentage. Use revenue after discounts and returns, and leave GST out of both lines, since it is collected for the government and is not your revenue. COGS covers only what it costs to make or deliver what you sold; rent, office salaries and marketing sit below gross profit. Do not confuse margin with markup: a Rs 300 item sold at Rs 500 is a 40% margin but a 67% markup. Subtract shipping, payment fees and ad spend per order to get contribution margin, the number that says whether each sale pays.
Part of Unit economics on eChai Explore.
5 resources, 5 link-checked.
A clear explainer of the gross margin ratio with the formula, (Revenue minus COGS) divided by revenue, a worked income statement example and a downloadable template.
From corporatefinanceinstitute.com by Corporate Finance Institute 8 min read
This is the cleanest plain-language separation of the two margins we found, and it walks through both formulas with actual dollar numbers instead of jargon. It is written for operators who are not finance people, which is exactly where most early founders sit. Treat it as your starting point for getting the definitions straight before you decide which number to steer by.
From Shopify by Shopify About 8 minute read
This is the cleanest side-by-side we found: it defines both margins in plain language and then walks the exact same $600,000 sales figure through both formulas, so you see gross margin land at 46.7% and contribution margin at 73.3% on identical numbers. The punchline is the one founders miss: gross margin strips out all product costs (fixed and variable), while contribution margin isolates only the variable costs, which is what actually tells you whether one more sale earns money. Treat it as your starting point for the vocabulary, not the last word on your own P&L.
From AccountingCoach by Harold Averkamp (AccountingCoach) 5 min read
Zerodha Varsity's chapter on profitability ratios, worked on a real Indian company's results. It defines EBITDA as operating revenue minus operating expense and walks through EBITDA margin and PAT margin.
From zerodha.com by Karthik Rangappa, Zerodha Varsity 20 min read
Varsity's line-by-line reading of an Indian company's profit and loss statement: revenue, other income, expenses and how they are presented in an annual report.
From zerodha.com by Karthik Rangappa, Zerodha Varsity 20 min read
The same ground, over in Money, pricing & unit economics, our D2C track.
How founders actually use AI for this, over in Finance & Accounting.
The same ground, over in Close deals and price right, our GTM track.
The same ground, over in Founder money foundations, our Wealth track.
