Finance Tools
Gross Margin Compression Calculator
Estimate how gross margin ($ and %) compresses after changes in selling price and unit cost, with before vs after comparison.
Compare gross margin before vs after price and cost changes, and measure margin compression in percentage points (pp).
Baseline price per unit.
Baseline cost per unit.
Tip: If you only care about unit economics, set units = 1.
Example: 2 means +2%.
Calculated.
Example: 8 means +8%.
Calculated.
Before
Revenue: $100,000
COGS: $65,000
Gross margin: $35,000 (35.00%)
After
Revenue: $102,000
COGS: $70,200
Gross margin: $31,800 (31.18%)
Compression
Margin compression: -3.82 pp
“pp” = percentage points (difference between two percentages).
Gross margin compresses because costs rose faster than prices (or prices fell).
How it works
- Revenue = price × units.
- COGS = unit cost × units.
- Gross margin $ = revenue − COGS.
- Gross margin % = gross margin ÷ revenue.
- Compression = margin% after − margin% before (pp).
FAQ
Is gross margin the same as operating margin?
No. Operating margin includes fixed operating expenses. Use the contribution margin tool for break-even and operating profit.
What if price decreases but costs increase?
This tool handles it — compression will be more negative and gross margin may turn negative.
How to use this gross margin compression calculator
- Enter selling price per unit, unit cost (COGS), and units sold.
- Enter the price change (% or $) and cost change (% or $).
- Review gross margin dollars and gross margin percentage before vs after.
- See margin compression in percentage points (pp).
Example
Price is $100, cost is $65, units are 1,000. Price increases 2% and cost increases 8%.
- New price = 100 × 1.02 = 102.00
- New cost = 65 × 1.08 = 70.20
- Gross margin% before = (100−65)/100 = 35.0%
- Gross margin% after = (102−70.2)/102 ≈ 31.18%
- Compression ≈ −3.82 pp
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