Gross margin = net sales – cost of goods sold. However, to express this as a percentage, gross margin is divided by net sales (gross margin dollars / net sales). This allows the retailer to assess what portion of sales were spent on COGS to generate the sales and what portion remains to cover operating expenses. That is:

• 1 – gross margin percent = the portion of sales spent as COGS
• 1 – (COGS / net sales) = gross margin percent