What is "Gross Margin" meaning?

Gross margin is a financial metric that indicates the percentage of revenue that exceeds the cost of goods sold (COGS). It reflects the efficiency of a business in producing and selling its products at a profit, excluding operating expenses, taxes, and interest.

Example

“Our company’s gross margin improved after we reduced production costs and increased our product prices, leading to higher profitability.”

How is "Gross Margin" used in business?

In business, gross margin is an important metric for understanding how well a company can cover its operating expenses with its sales revenue. It's often used by analysts and investors to assess a company’s financial health and operational efficiency.

Pro Tip

To improve gross margin, focus on optimizing production costs, increasing prices without sacrificing demand, or improving supply chain efficiencies.

Related Terms

Cost of Goods Sold (COGS), Profitability, Revenue Model, Operating Margin