Finance
Gross Margin
(Revenue − Cost of Goods Sold) ÷ Revenue. The single most diagnostic operating metric on a P&L.
Gross margin tells you how much of each revenue dollar remains after paying the direct cost of producing and delivering the product or service. Operating expenses (rent, admin, marketing) are deducted from gross profit, not before.
Healthy gross margin varies by industry: SaaS 70–85%, professional services 40–60%, e-commerce 30–50%, food service 50–70%, construction 20–35%.
Trending gross margin down is the earliest warning sign of pricing pressure, input cost creep, or shifting customer mix.
Common pitfalls
- Misclassifying labor — direct service-delivery labor belongs in COGS, not opex. Without this, gross margin is meaningless
- Including freight-in but not freight-out (or vice versa) — pick a consistent treatment
- Comparing gross margin across industries without context — the right benchmark depends on the business model
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