comparison
Gross margin vs net margin
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
Gross margin shows profit after direct product costs; net margin shows profit after every cost, including overheads, interest and tax.
Side-by-side comparison
| Aspect | Gross margin | Net margin |
|---|---|---|
| Formula | (Revenue − COGS) ÷ Revenue | Net profit ÷ Revenue |
| Costs deducted | Direct costs only | All costs |
| Tells you | Product profitability | Overall business profitability |
| Typical level | Higher | Lower |
Which should you choose?
Look at gross margin to
- · Price products.
- · Compare suppliers.
- · Decide which products to push.
Look at net margin to
- · Judge overall health.
- · Compare with competitors.
- · Decide on overhead cuts.
the verdict
Healthy gross margin with weak net margin means overheads are too high; weak gross margin means pricing or product costs need fixing.
Frequently asked questions
What is a good gross margin?
It varies by industry — compare with peers in our benchmarks bank.
Why can net margin be negative while gross margin is positive?
Overheads, interest and taxes can exceed gross profit.
Is EBITDA margin the same as net margin?
No — EBITDA margin excludes interest, tax, depreciation and amortisation.