accounting
Gross Margin
Gross margin is revenue minus cost of goods sold, expressed as a percentage of revenue.
Last updated Reviewed by ICG Funding
Definition
What it means.
Gross margin measures the profitability of the core product or service before operating expenses. A restaurant typically runs 60–70% gross margin; a retail shop 30–50%; a professional services firm 70–90%.
When gross margin compresses month-over-month, it is usually a pricing, vendor-cost, or product-mix issue. Lenders look for stable or expanding gross margin as a sign the business model still works.
Example
$500,000 revenue − $200,000 COGS = $300,000 gross profit. Gross margin = 60%.
Now what?
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