Dictionary / Financial statements
What Is Gross Margin?
Gross margin is gross profit as a percentage of revenue. It tells you how many cents a company keeps from each dollar of sales after paying for the product itself.
How to calculate gross margin
Gross profit÷Revenue×100=Gross margin %
Sales of $100,000 and gross profit of $40,000 give a gross margin of 40%.
What is a good gross margin?
It depends on the industry. Supermarkets often have gross margins of 20% to 30%. Software companies often reach 70% to 80% or more, because selling one more copy costs almost nothing. Compare within an industry.
Why investors watch it
A high, stable gross margin means customers will pay well above cost. That is a sign of a strong brand or an economic moat. A falling gross margin can mean rising costs or tougher competition.
See it in real companies
Open a company to see what it sells and how it makes money.
Related terms
Gross profitSales minus the direct cost of the product.
Profit marginHow many cents of profit from each dollar of sales.
Cost of goods soldThe direct cost of making what you sell.
Economic moatWhat protects a company from competitors.
Operating incomeProfit from the core business.
Income statementShows revenue, costs and profit.