Finance · business glossary
What is Gross margin?
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
definition
The percentage of revenue left after subtracting the direct cost of making or delivering what you sold, before any overhead is deducted.
Gross margin explained
Gross margin shows how much of each rupee of sales is left after paying for the product itself — materials, manufacturing or purchase cost, and direct labour. It ignores rent, salaries of support staff and marketing.
formula
Gross margin % = (Revenue − Cost of goods sold) ÷ Revenue × 100
example
A shop sells goods worth ₹10,00,000 that cost ₹6,00,000 to buy. Gross profit is ₹4,00,000, so gross margin is 40%.
why it matters
It tells you whether the core product is profitable before overheads, and how much room you have for marketing, salaries and discounts.
common mistake
Confusing margin with markup. A 50% markup on cost is only a 33% gross margin.
Frequently asked questions
What is Gross margin?
The percentage of revenue left after subtracting the direct cost of making or delivering what you sold, before any overhead is deducted. Gross margin shows how much of each rupee of sales is left after paying for the product itself — materials, manufacturing or purchase cost, and direct labour. It ignores rent, salaries of support staff and marketing.
How do you calculate Gross margin?
Gross margin % = (Revenue − Cost of goods sold) ÷ Revenue × 100. A shop sells goods worth ₹10,00,000 that cost ₹6,00,000 to buy. Gross profit is ₹4,00,000, so gross margin is 40%.
Why does Gross margin matter?
It tells you whether the core product is profitable before overheads, and how much room you have for marketing, salaries and discounts.
What is a common mistake with Gross margin?
Confusing margin with markup. A 50% markup on cost is only a 33% gross margin.
Related terms
Net margin
The percentage of revenue left as actual profit after every cost — direct, overhead, interest, and tax — has been subtracted.
Variable costs
Costs that rise and fall directly with how much you produce or sell, like raw materials or packaging.
Unit economics
The revenue and cost of a business at the level of one single unit — one customer, one order, one product — used to judge if the model actually works before scaling it.