Gross margin
Share of revenue left after the direct cost of what was sold. High for software, low for retailers and manufacturers.
Worked example · a round-number company
Gross profit$3.5B÷Revenue$5.0B=Gross margin70.0%How to read it
↑Higher is better. More room to pay for research, marketing and profit.
Example Co. 70.0%
Under 30%30% to 60%Over 60%
Compare within an industry: 30% is fine for hardware, weak for software.
Keep in mind
- Companies draw the line between cost of sales and other costs differently.