Gross Margin
Gross margin is the percentage of revenue remaining after subtracting the direct costs of producing your product or delivering your service. It measures how efficiently your business converts revenue into profit before accounting for overhead, taxes, and other expenses.
Types
Gross Profit
Revenue minus Cost of Goods Sold (COGS). If you earn $100,000 and your COGS is $60,000, your gross profit is $40,000.
Gross Margin Percentage
Gross profit divided by revenue, expressed as a percentage. $40,000 / $100,000 = 40% gross margin.
Why it matters
Gross margin tells you how much money is available to cover operating expenses and generate profit. A low gross margin means you have little room for error. Rent, payroll, and marketing all have to come out of a thin slice. A healthy gross margin gives you flexibility.
Real-world example
A dental practice generates $120,000 in monthly production. Their supply costs (COGS) run $18,000 per month. Gross profit is $102,000. Gross margin is 85%, which is typical for dental practices where the main costs are labor and supplies rather than manufacturing.
Ask FREM about your data
Ask FREM: "What is my gross margin this month?" to get an instant calculation from your QuickBooks data, broken down by revenue and cost categories.
Start free trial →Related terms
Stop reading about gross margin. Start measuring yours.
Connect your accounts and ask FREM anything about your actual business finances, in plain English, from your real data.
Start 7-Day Free Trial