Gross Margin
Gross profit as a percentage of revenue.
Gross margin expresses gross profit as a percentage of revenue, showing how much of each sales dollar remains after covering direct production costs. It's a key profitability metric that varies widely by industry—SaaS companies typically exceed 75%, while retail may be 30–50% and grocery stores 25–30%. Declining gross margin suggests rising input costs or pricing pressure.
Formula
Gross Margin = (Revenue − COGS) ÷ Revenue × 100Example
A clothing brand generates $200,000 in revenue with $80,000 in COGS, yielding a 60% gross margin—meaning 60 cents of every dollar covers overhead and profit.
Why It Matters for Your Business
Gross margin is the clearest indicator of product-level profitability and the first number to examine when profits are declining.
Related Terms
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Ensuring account balances match between different records.
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The sales volume at which revenue equals costs.
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A financial plan estimating income and expenses.
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A prediction of future financial performance.
Capital Expenditure
Funds used to acquire or upgrade physical assets.
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