What is gross margin?

Gross profit expressed as a percentage of revenue — the share of each sales dollar left after the cost of goods.

What is a good gross margin?

It depends on the industry — software often runs 70–90% while retail is far lower; compare within a model, not across.

Growth Marketing Glossary

Gross Margin

noun

Gross profit as a percentage — the version you can compare across products, companies, and years on equal footing.

Schematic — gross profit as a share of revenue

Term: Gross Margin
Part of speech: Noun
Field: Finance / Unit econ
Formula: Gross profit ÷ revenue

Forms & parts of speech

gross margin · noun

Gross profit as a % of revenue.

"Software's high gross margin is why investors prize it over hardware."

Definition in plain terms

Gross margin is gross profit divided by revenue, expressed as a percentage — the share of every sales dollar that remains after the direct cost of producing what was sold. Where gross profit is an absolute amount, gross margin normalizes it so you can compare products, companies, and periods of different sizes.

The mechanics

Gross margin = (revenue − COGS) ÷ revenue × 100. A table that sells for $500 with $300 of COGS has a 40% gross margin. The figure varies hugely by industry: software often runs 70–90% because copies cost almost nothing to make, while retail and hardware are far lower. What's "good" is relative to the business model, not an absolute number.

When it matters

Gross margin is a structural signal of a business model's quality: high margins leave more room to fund growth, weather competition, and reach profit. It's central to unit economics and to valuing companies — investors prize high-margin models. The trap is comparing margins across unlike industries, where a "low" margin may be perfectly healthy.

Worked example. A SaaS company has 85% gross margin: serving one more customer costs almost nothing, so most of each subscription dollar is left to fund growth. A hardware competitor runs at 30% because every unit has real material cost. The SaaS firm can pour far more of each sale into marketing and still profit — which is exactly why its model commands a higher valuation.

Failure modes to watch. Comparing gross margins across unlike industries; confusing margin (a percentage) with gross profit (a dollar amount); inconsistent COGS definitions distorting it; and treating a single "good margin" benchmark as universal.

Synonyms & antonyms

Synonyms

gross margingross profit margin

Antonyms

net marginoperating margin

Usage trends

Search interest for this term over the last five years:

View interest-over-time on Google Trends →

Common questions

What is gross margin?: Gross profit expressed as a percentage of revenue — the share of each sales dollar left after the cost of goods.
What is the gross margin formula?: Gross margin = (revenue − COGS) ÷ revenue × 100.
What is a good gross margin?: It depends on the industry — software often runs 70–90% while retail is far lower; compare within a model, not across.

Related tools & calculators

toolLTV calculator

Resources & people to follow

bookFinancial Intelligence — Berman & Knight
referenceInvestopedia — gross margin
thought leadera16z — SaaS metrics

Curated, non-competitor resources verified per term.

Related training

moduleMarketing analytics

Disciplines

Areas of marketing where gross margin is a core concern:

Unit economicsFinancial literacy

Sources

trendsGoogle Trends — "gross margin"