Gross Margin

Gross margin measures how much of each dollar of revenue becomes gross profit. It's calculated as (Revenue − Cost of Goods Sold) / Revenue × 100.

COGS includes the direct costs to produce or acquire what you sell: materials, direct labour, direct manufacturing overhead, or the wholesale cost of merchandise. It excludes sales, marketing, administration, R&D — those sit below in the income statement.

Typical ranges by industry (approximate): — SaaS / software: 70-90% — Agencies, professional services: 40-70% — Manufacturing: 20-35% — Retail: 25-45% — E-commerce: 30-50% — Restaurants: 60-70% (food cost ~30%) — Grocery: 20-30%

Why it matters: gross margin is roughly what's left to cover operating costs (sales, marketing, R&D, G&A) and generate net profit. A company with a 20% gross margin has to either be very efficient on operating costs or scale huge to be profitable. One with 80% gross margin has much more room.

Not the same as markup: markup is profit as a percent of cost; margin is profit as a percent of revenue. A 100% markup on a $50 cost gives a $100 price — $50 profit on $100 revenue = 50% margin, not 100%.