What is Gross Margin?Gross Margin is the difference between Revenue and Cost Of Goods Sold (COGS). Typically, it is calculated as the selling price of an item, minus the cost of material and labour used to produce the item.
How to calculate Gross Margin
ƒ Sum(Revenue) - Sum(COGS)
Level of complexity
Date created: Feb 16, 2019
Latest update: May 17, 2019
Tell me more about this metric
Gross Margin can be expressed as a value, such as dollars, or expressed as a percentage, by dividing Gross Margin by Revenue.
Gross Margin is the profit made by a company after the costs incurred in making a product are subtracted from the sales revenue.
Gross Margin is typically included in a company’s income statement. Executives use it as an indication of how efficiently a company is using its resources. If labour and supply costs are high, then Gross Margin will be low. Usually, Gross Margin does not include fixed costs or costs that the company will incur regardless of output.
Although Gross Margin dollars may increase over time, the percentage may not. You need to look at both the absolute value (in dollars) and percentage value (by dividing Gross Margin by Revenue) for a true understanding of your metric.
For example, if a florist has a revenue of $15,000 and Cost of Goods Sold is $6,000, their Gross Margin will be:
Gross Margin = $15,000 - $6,000 = $9,000