Business glossary
Gross margin
Revenue minus direct cost, commonly expressed as an amount or percentage of revenue.
Example
A $1,000 sale with $700 of cost of goods sold gives $300 gross profit and a 30% gross margin: ($1,000 − $700) ÷ $1,000 × 100. The corresponding markup on $700 is about 42.86%.
How it differs from related terms
Gross margin divides gross profit by revenue. Markup divides profit by cost. Net margin also reflects other expenses, so a positive gross margin does not establish the final profit available to the business.
Frequently asked questions
What is an example of gross margin?
A $1,000 sale with $700 of cost of goods sold gives $300 gross profit and a 30% gross margin: ($1,000 − $700) ÷ $1,000 × 100. The corresponding markup on $700 is about 42.86%.
How should gross margin be interpreted?
Gross margin divides gross profit by revenue. Markup divides profit by cost. Net margin also reflects other expenses, so a positive gross margin does not establish the final profit available to the business.