Gross margin is a financial metric that measures the profitability of a company's products or services by comparing the revenue from those products or services to the direct costs associated with producing them. It is calculated by subtracting the cost of goods sold (COGS) from revenue and then dividing that number by revenue. The result is expressed as a percentage.
For example, if a company has revenue of $100,000 and COGS of $60,000, its gross margin would be 40% ($40,000 / $100,000 = 0.4). This means that the company has a gross profit of 40 cents for every dollar of revenue.
Gross margin is an important metric for businesses because it measures how much money is left over from revenue after direct costs are covered. This can help a company determine how much money it has available to cover other expenses, such as marketing, research and development, and general and administrative costs.
If You Don't Understand Margin, You Don't Understand Business