Gross Margin
📈 Investing
Quick Definition
Gross margin is a financial metric that measures the percentage of total sales revenue that exceeds the cost of goods sold (COGS). It indicates how efficiently a company uses labor and supplies in the production process.
Formula
Gross Margin = ((Total Sales Revenue - Cost of Goods Sold) / Total Sales Revenue) * 100Examples
- 1A company with $200,000 in sales and $150,000 in COGS has a gross margin of 25%, showing it retains $0.25 from each dollar of sales after covering the cost of goods sold.
- 2A retail clothing store with higher gross margins than its competitors can offer competitive pricing or invest more in marketing.
- 3A manufacturer improves its gross margin by reducing production costs through more efficient manufacturing techniques or cheaper raw material sourcing.
- 4A business tracking its gross margin over time to assess whether changes in pricing strategies or cost management are improving profitability.
Tags
gross-marginprofitabilityfinancial-metricscost-managementsales-revenue
Related Terms
Other terms you might find helpful
Net Profit Margin
Net Profit Margin is a financial ratio that measures the percentage of net income derived from total revenues, indicating how much of each dollar earned by the company is translated into profits.
Operating Margin
Operating margin is a profitability ratio that measures the percentage of profit a company makes from its operations, relative to its revenue.
Quick Info
Category:Investing
Difficulty:intermediate
Last Updated:6/19/2025