Gross Margin
The percentage of revenue remaining after subtracting the cost of goods sold.
Also: gross profit margin
Definition
Gross margin is the percentage of total revenue that a company retains after deducting the direct costs of producing its goods or services (Cost of Goods Sold, or COGS). It is calculated as (Revenue - COGS) / Revenue x 100%. Gross margin represents the profitability of a company's core products before accounting for operating expenses like sales, marketing, and administration. High gross margins (e.g., software companies at 70-80%) indicate pricing power and scalability; low margins (e.g., grocery retailers at 25-30%) indicate more competitive markets.
Example
“A software company with $10M in revenue and $2M in COGS has a gross margin of 80%, meaning 80 cents of every revenue dollar remains to cover operating expenses and generate profit.”
Usage Examples
- 1
“The team applied gross margin best practices to improve their accounting outcomes significantly.”
- 2
“Understanding gross margin is essential for anyone building a career in Finance.”
When & How to Use
Use 'Gross Margin' when working in Accounting contexts where gross margin is the percentage of total revenue that a company retains after deducting the direct costs of producing its goods or services (cost of goods sold, or cogs).
- ▸Applying gross margin principles during a accounting project or initiative
- ▸Explaining gross margin to a junior team member or stakeholder unfamiliar with Finance
- ▸Evaluating options or proposals using gross margin as a decision-making criterion
Etymology & Origin
The term 'Gross Margin' derives from Latin roots and entered Finance professional usage as the field formalised in the 20th century.
History & Evolution
The concept of gross margin has evolved alongside Finance. Early practitioners relied on informal methods; structured approaches emerged with the professionalisation of accounting in the mid-20th century. Today, gross margin is a standard part of Finance practice globally.
Synonyms
- gross profit margin
- gross profit percentage
- product profitability
Antonyms / Opposites
- cost ratio
- COGS ratio
Images
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Related Terms
- income-statement
- cogs
- operating-margin
- net-margin