E-Commerce Dictionary
Gross Margin
Definition
A company's total sales revenue minus its cost of goods sold (COGS), divided by total sales revenue, expressed as a percentage.
Deep Dive
Gross Margin is a vital profitability metric that indicates the percentage of revenue left after deducting the cost of goods sold (COGS) from total sales revenue. It is calculated by taking a company's total sales revenue, subtracting its COGS, and then dividing that result by the total sales revenue, typically expressed as a percentage. This metric essentially shows how much profit a company makes from its core products or services before accounting for operating expenses, interest, and taxes.
Examples & Use Cases
- 1A software company boasts a high gross margin because its primary costs are development and maintenance, which are relatively low compared to the recurring revenue from software licenses.
- 2A retail clothing store calculates its gross margin on a new line of designer dresses to determine the profitability after accounting for the wholesale purchase price from the supplier.
Related Terms
Net ProfitCost of Goods Sold (COGS)RevenueProfitability