Glossary / Gross Margin
Gross Margin
Gross margin is the percentage of revenue remaining after subtracting the direct cost of producing the goods or services sold (COGS). It is calculated as (Revenue minus COGS) divided by Revenue. Gross margin measures pricing power and production efficiency; raising gross margin compounds across every dollar of revenue.
Formula
Gross margin (%) = (Revenue - COGS) / Revenue × 100
Example
If a business generates $100,000 in revenue and COGS is $40,000, gross profit is $60,000 and gross margin is 60%. If COGS rises to $50,000 next quarter, gross margin drops to 50% — every dollar of revenue is worth less.
Why it matters
Gross margin determines how much revenue can flow to operating expenses, R&D, and profit. SaaS businesses target 70-90% gross margin; e-commerce typically 30-60%; manufacturing often 20-40%. Knowing your industry benchmark matters.
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