Gross Margin
Candlefocus EditorGross margin is calculated by subtracting the cost of goods or services from total revenue and then dividing by the total revenue. The cost of goods or services includes manufacturing cost, labor and overhead, as well as any other costs directly associated with producing the item. Gross margin percentages vary greatly by industry, but a company that consistently keeps a gross margin of 30%-40% is considered successful.
Gross margin is a key indicator of a company's profitability and is therefore closely watched by investors. It can also be used to compare a company's performance to its peers in the industry, as well as to track performance over time. In industries with high gross margins, companies can focus more on marketing or research and development in order to grow their business. Additionally, businesses with high gross margins may be able to offer lower prices and still make a profit, making them more competitive in the market.
Gross margin is an important metric for assessing the current health of a business and can be used to make important decisions about prices, services, and other aspects of the business. Though gross margin is not the only factor to be considered in evaluating a business’s profitability, it is an important indicator and should be closely monitored by business owners.