Gross Margin
Definition
The percentage of net sales left after paying for the products you sold. It shows how much each sales dollar contributes before overhead and marketing.
Want a deeper explanation?
Formula
Gross Margin % = (Net Sales − COGS) ÷ Net Sales × 100Gross margin tells you whether your products make money before you pay for anything else. It is the first number a lender, buyer or CFO looks at, because everything below it on the P&L has to be paid out of it.
It is only as reliable as the COGS and net sales behind it, so landed cost, returns and discounts all need to be booked correctly. Watch for: gross margin by channel or SKU, because a healthy blended number can hide products that lose money.
Example
$500,000 net sales and $300,000 COGS gives a 40% gross margin.