What is Gross Margin?
The percentage of each sale left after the direct cost of producing it — the number that decides whether scale helps you.
Gross margin is revenue minus the direct cost of what you sold (materials, manufacturing), expressed as a percentage. Sell a shirt for $30 that costs $12 to make, and your gross margin is 60%. That 60% is what's available to cover everything else: rent, salaries, marketing, and eventually profit.
It's the number that decides whether growth is a good idea. At 60% margin, doubling sales doubles the money available for overhead. At 5% margin, doubling sales mostly doubles your work — which is why some businesses get healthier as they grow and others just get busier.
Software and digital products have famously high gross margins, because copying a file costs nothing; reselling and retail have thin ones, because every extra sale needs extra stock. Neither is better — they're different games that reward opposite instincts. It's one of the first numbers investors ask about, because it hints at how good the underlying business can become.
Related terms
Definitions from the Business Dog Glossary — educational, occasionally satirical, never financial advice.