Finance

Gross Margin

Revenue minus cost of goods sold, expressed as a percentage of revenue.

Gross Margin is the percentage of revenue remaining after subtracting the direct cost of delivering the product or service (cost of goods sold). It's the foundational profitability metric. Sustainable SaaS businesses typically run 70-85% gross margin. E-commerce DTC brands run 40-65%. Services businesses run 30-60%. Marketplaces can run 80-95% on net revenue.

Formula

Gross Margin = ((Revenue - COGS) / Revenue) × 100

Example

A SaaS company has $1M revenue and $200K in cloud hosting, support staff, and other delivery costs. Gross margin = ($1M - $200K) / $1M = 80%.