Gross Margin Definition
Gross margin is computed by deducting cost of goods sold (COGS) from the business’s incoming revenue.
Gross Margin Expanded Definition
Gross margin is usually recorded on the profit and loss statement. The only business expenses which are used to compute gross margin are those that are directly related to the cost of the goods sold (COGS).
The gross margin formula is:
Gross Margin = [(Revenue – COGS) / Revenue] X 100
Once the gross margin is determined, it can be used to set prices, identify ways to save on costs, or predict risks for a business. Gross margin is important when assessing a business’s profitability.
Last Updated By
Rachel Blakely-Gray | Apr 12, 2023