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What is gross margin?

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Quick answer

Gross margin is the percentage of revenue left after subtracting the direct cost of making a product (cost of goods sold). It shows how efficiently a company produces what it sells, before overhead and other expenses. It's revenue minus cost of goods sold, as a percent.

Key things to understand

  1. It's revenue minus cost of goods sold, as a percent.
  2. It measures production efficiency and pricing power.
  3. Higher gross margin means more left to cover other costs.
  4. It's a key profitability metric for businesses.

People also ask

What is gross margin?
The share of revenue remaining after the direct cost of producing goods, shown as a percentage.
How do you calculate gross margin?
Subtract cost of goods sold from revenue, divide by revenue, and multiply by 100.
What's the difference between gross and net margin?
Gross margin counts only direct production costs; net margin subtracts all expenses, including overhead and taxes.