GlossaryGross Margin

Gross Margin

What's left of revenue after the direct cost of producing it.

Gross margin is gross profit — revenue minus cost of goods sold — as a percentage of revenue. It shows how much a company keeps after directly producing what it sells, before overhead, R&D, and marketing.

The formula

Revenue − COGSRevenue
= Gross Margin

Why it matters

  • A structural ceiling on profitability — everything below gross profit (overhead, R&D, marketing) eats into it further.
  • Software and pharma run high gross margins; retail and manufacturing run thinner ones — compare within industry.
  • A shrinking gross margin over time is often an early warning of pricing pressure or rising input costs.

How to read it

< 30%Capital- or input-intensive business
30%–60%Typical for most industries
> 60%Software, pharma, or strong pricing power

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