Gross margin
The share of sales left after the direct cost of the goods sold, shown as a percentage of sales.
What it means in business
Gross margin is sales less the cost of goods sold, divided by sales. For a manufacturer, the cost of goods sold includes materials, direct labour and the direct costs of production. It shows how much each rupee of sales leaves to cover overheads and profit.
Example
A product sells for 1,000 and its direct cost is 700. The gross profit is 300, and the gross margin is 30 percent. This is an illustration of normal business use rather than a quoted case study.
How to use it correctly
Work it out for each product and customer, using full direct cost including freight and scrap, and watch it over time. A fall often means costs have risen without prices following.
Common confusion
Gross margin is not markup. Markup is profit as a percentage of cost, and margin is profit as a percentage of price: a 30 percent margin is a markup of about 43 percent. It is also not net profit, which comes after overheads.
Related glossary terms
Written on 24 October 2026 for lamp. Confirm the current rules with the official source or an adviser before relying on it.