Gross margin

A margin is a profit number expressed as a percentage of revenue. It tells you how many cents of each sales dollar the company keeps at a given point on the income statement.

Gross margin is the first and broadest margin. It measures what percentage of revenue is left after subtracting the cost of goods sold, capturing the basic profitability of the product itself before any of the costs of running the wider business.

The formula is: Gross profit / Revenue x 100 = Gross profit margin

A high gross margin means the company can charge much more for its product than it costs to make. Software and luxury businesses often run above 70% because each additional unit costs very little to produce. Grocery stores and airlines often run below 30% because the inputs are expensive relative to what the customer pays.