Metric
Gross Margin
What's left of revenue after direct costs to produce the product.
Formula
(Revenue − Cost of Goods Sold) ÷ Revenue
Definition
Gross margin measures how efficiently a company turns revenue into profit before overhead, marketing, or taxes. A higher gross margin means each sale contributes more to covering fixed costs and generating profit.
Why it matters
Strong, stable gross margins often signal pricing power, a durable competitive advantage, or efficient production. Declining gross margins can mean rising input costs, pricing pressure, or a weakening moat.
Watch-outs
Compare within an industry. Software companies typically run at 70%+ while grocers might sit under 25%.
Building blocks
- Revenue
- Total money earned from selling products or services.
- Cost of Goods Sold (COGS)
- Direct costs tied to producing what the company sells.
Educational information only, not investment advice. Turtleway helps you understand what a metric or concept means; it does not tell you what to buy or sell.