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Definition

What is Gross Margin?

Revenue minus cost of goods sold, expressed as a percentage of revenue.

Gross margin measures how much of each dollar of revenue is left after paying for the direct costs of producing or delivering the product or service (COGS). It is the foundational profitability metric for pricing decisions and is calculated before operating expenses like salaries, rent, and marketing.

Formula

Gross Margin (%) = (Revenue − COGS) ÷ Revenue × 100

Example

A product sells for $100 with $35 in COGS. Gross margin = ($100 − $35) ÷ $100 × 100 = 65%.

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Related terms

  • Contribution Margin — Revenue minus variable costs — the amount each unit contributes toward fixed costs and profit.
  • Break-Even ROAS — The minimum return on ad spend needed to cover the cost of running an ad campaign.