How do you calculate gross margin for a consumer product brand?
Gross margin is the percentage of net sales left after the cost of goods sold. It's calculated as net sales minus COGS, divided by net sales, where COGS is the landed cost of the products sold. For a consumer brand, it's what remains to pay for fulfillment, marketing, and overhead.
Formula
(Net sales − cost of goods sold) ÷ net sales
Example
A hypothetical beverage brand has $1,000,000 of net sales and $580,000 of landed COGS in a month. Gross profit = $1,000,000 − $580,000 = $420,000. Gross margin = $420,000 ÷ $1,000,000 = 0.42, or 42%.
How to read it
Higher is better. Channel mix moves it a lot: wholesale and Amazon sales usually carry different margins than DTC, so a shift in mix can change gross margin with no change in product cost. Make sure COGS includes freight, duties, and other landing costs consistently, and watch for month-end inventory adjustments that make one month look unusually good or bad.
What moves it
- Factory costs, freight, tariffs, and duties built into landed cost
- Channel mix between DTC, wholesale, and Amazon
- Discounting and promotional depth
- Inventory write-downs and shrink
- Price increases or changes in product mix
What to do when it's flagged
- Split gross margin by channel and top SKUs to find the source
- Check that landed cost (freight, duties, tariffs) is booked correctly and in the right period
- Review discount depth and wholesale pricing
- Reprice, renegotiate supplier costs, or rationalize low-margin SKUs
How Inflection tracks it
Inflection's KPI Monitor flags gross margin as Watch below 45% and Critical below 35% by default; each client's thresholds are adjusted to their business.
Net sales and COGS come from the QuickBooks P&L, with Shopify sales used for net sales when QuickBooks hasn't been booked for the month.
Updated 2026-10-11. Example figures are hypothetical.