Definition
Gross margin shows what percentage of revenue remains after direct production costs. Higher gross margins indicate pricing power, product differentiation, or efficient production. Trends in gross margin reveal competitive dynamics and cost management effectiveness.
Formula
Gross Margin = (Revenue - COGS) / Revenue × 100%
Example
A software company with $100M revenue and $20M COGS has 80% gross margin. A retailer with same revenue but $65M COGS has only 35% gross margin.
FAQ
What is Gross Margin?
Gross profit as a percentage of revenue.
How do you calculate Gross Margin?
A common formula for Gross Margin is: Gross Margin = (Revenue - COGS) / Revenue × 100%
Why is Gross Margin important?
Gross Margin helps investors evaluate profitability and make more informed decisions.