GlossaryIntermediate
Gross Margin
Gross profit divided by revenue, measuring profitability after only the direct costs of producing what a company sells.
Gross margin divides a company's gross profit (revenue minus the direct cost of producing what it sold) by its total revenue, measuring profitability after only the most direct production costs — before accounting for broader operating expenses like marketing, R&D, or administrative overhead.
It's the first and typically highest of the three commonly discussed margin figures — gross, operating, and net (see Kaavon's "Operating Margin" and "Net Margin" glossary definitions) — each subtracting progressively more cost categories. See Kaavon's dedicated Gross Margin article for the full calculation.
Examples
- A software company often has a much higher gross margin than a physical-goods retailer, since its direct cost of producing each additional unit sold is typically far lower.
- Gross margin is the first of three commonly compared margin figures, measuring profitability before broader operating expenses are subtracted.