Finance
What is Gross margin?
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.
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Watch a 2-minute lesson with voice + animation that explains gross margin.
Key things to understand
- 1It's revenue minus cost of goods sold, as a percent.
- 2It measures production efficiency and pricing power.
- 3Higher gross margin means more left to cover other costs.
- 4It's a key profitability metric for businesses.
Frequently asked questions
- 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.