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Updated 1mo ago.
Updated 1mo ago.
Gross margin = (revenue − cost of goods sold) ÷ revenue. Shows what's left after direct production costs, before marketing, R&D, etc. SaaS techs run 70–90% gross margins (software has low marginal cost); retailers, 20–40%. Rising gross margin signals pricing power.
A company sells $1B and its direct production costs (materials, labor) are $600M. Its gross margin is 40% (($1000 − $600) ÷ $1000).
Gross margin shows a product's basic profitability, before overhead. A high margin (software, luxury) gives cushion; a thin margin (groceries, retail) demands huge volume. Always compare within the same sector.