Gross Margin
Date created: Oct 12, 2022 • Last updated: Apr 04, 2023
What is Gross Margin?
Gross Margin is a profitability ratio that measures Gross Profit as a percentage of total revenue. Typically, it is calculated as Gross Profit divided by Revenue.
Gross Margin Formula
How to calculate Gross Margin
If a florist has a revenue of $15,000 and Cost of Goods Sold is $6,000, their Gross Margin will be: ($15,000 - $6,000) / $15,000 = 60%
Start tracking your Gross Margin data
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What is a good Gross Margin benchmark?
For SaaS companies, Gross Margin is relatively consistent from smaller to larger companies, with median GM% between 69% and 76%, and the top quartile achieving 80% to 85%. Capchase 2022, n=439. When looking at its portfolio of companies scaling to $10M in ARR, Bessemer Venture Partners reports the bottom quartile at less than 60%, the middle at 70%, and the top at 85% Gross Margin or higher. April 2022.
Gross Margin benchmarks
Gross Margin Percentage by ARR
Gross Margin Percentage by Target Customer
How to visualize Gross Margin?
Use a summary chart to visualize your Gross Margin data and compare it to a previous time period.
Gross Margin visualization example
Summary Chart
Gross Margin
Chart
Measuring Gross MarginMore about Gross Margin
Gross Margin is the percentage of profit made by a company after the costs incurred in making a product are subtracted from the sales revenue. Gross Margin is typically expressed as a percentage, by dividing Gross Profit by 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 labor 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 Profit may increase over time, Gross Margin 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. Since Gross Margin does not consider fixed costs, it does not provide a complete picture of profitability, which is why it must be tracked alongside other profitability metrics.