Calculate direct margin percentage, margin amount, and required price from revenue, direct costs, selling price per unit or job, and quantity.
Direct Margin Formula
The calculator uses one of three formulas depending on the mode you select.
Total or unit direct margin (%):
Direct Margin % = (Revenue - Direct Costs) / Revenue * 100
Required price for a target direct margin:
Price = Direct Cost / (1 - Target Margin %)
- Revenue — sales dollars for the period, unit, or job.
- Direct Costs — costs that scale directly with the sale (materials, direct labor, freight in, sales commissions, processing fees).
- Target Margin % — the direct margin you want to achieve, entered as a percent.
- Price — the selling price needed to hit that target.
Direct margin only subtracts variable, traceable costs. It does not include overhead, rent, salaries of non-production staff, or depreciation. That makes it higher than gross margin in most cases. Use the same time period and same unit basis on both sides of the equation.
Reference Tables
Typical direct margin ranges by industry. Use these as a sanity check, not a target.
| Industry | Typical Direct Margin |
|---|---|
| Grocery / food retail | 15% – 30% |
| General merchandise retail | 30% – 50% |
| Restaurants | 60% – 70% |
| Construction / trades | 20% – 35% |
| Manufacturing | 25% – 40% |
| Professional services | 50% – 70% |
| SaaS / software | 70% – 85% |
How to read your result:
| Direct Margin | Reading |
|---|---|
| Below 0% | Selling at a loss before any overhead is covered. |
| 0% – 20% | Thin. Overhead and profit must come from very high volume. |
| 20% – 50% | Workable for most physical-goods and trades businesses. |
| 50%+ | Strong. Common in services and software. |
Example and Common Questions
Example. A job sells for $120. Materials and direct labor are $75. Direct margin amount is $45. Direct margin percent is 45 / 120 = 37.5%. To raise that to a 50% target on the same $75 cost, the price would need to be 75 / (1 − 0.50) = $150.
Is direct margin the same as gross margin? Close, not identical. Gross margin uses cost of goods sold, which often includes allocated factory overhead. Direct margin only subtracts costs that change with each sale.
What counts as a direct cost? Anything that goes away if the sale does not happen. Raw materials, components, hourly production labor, shipping in and out, payment processing fees, and per-sale commissions.
What about rent and salaries? Those are fixed or overhead costs. Leave them out of direct margin and handle them at the operating margin level.
Why does the target price formula divide by (1 − margin)? Because the margin is a percent of price, not cost. Dividing the cost by the leftover share of price (1 − margin) gives the price where costs sit at exactly that share.
