Gross Margin
The percentage of revenue remaining after subtracting cost of goods sold — a measure of pricing power.
Gross margin is calculated as (Revenue - Cost of Goods Sold) / Revenue × 100. It measures how much of each dollar of revenue is available to cover operating expenses and generate profit after accounting for the direct costs of delivering the product or service.
Gross margin is the first indicator of unit economics health. For SaaS companies, healthy gross margins are typically above 70%. For e-commerce, 40-60%. For manufacturing, 25-45%. Significant deviation from industry benchmarks signals pricing problems, cost inefficiencies, or product mix issues.
Tracking gross margin over time and by product line, geography, or customer segment reveals where a business is creating value and where it's eroding. A declining gross margin may indicate rising input costs, competitive pricing pressure, or a shift toward lower-margin products.
For CFOs, gross margin analysis is one of the most actionable financial exercises because it directly connects to pricing decisions, supplier negotiations, and product strategy.
Related Terms
The percentage of revenue that becomes profit after all expenses, taxes, and interest are paid.
Earnings Before Interest, Taxes, Depreciation, and Amortization — a measure of operating profitability.
A financial report summarising revenue, costs, and profit over a specific period.