All terms
Finance
Gross margin
Revenue minus the variable cost of delivering the product or service, expressed as a percentage of revenue.
In plain English
What percent of every dollar of revenue actually stays in your business after the cost of delivering it.
Example
$100 of revenue, $25 of variable delivery cost (hosting, payment fees, support) → gross margin = 75%.
Formula
Gross margin % = (Revenue − Variable cost of goods sold) / Revenue × 100
Why it matters
Gross margin determines whether a business model can scale. Below 30% for software, below 20% for services, is structurally hard to grow without changing the cost base.
Common mistakes
- Including fixed costs (salaries, rent) in the COGS — those are operating expenses, not COGS
- Treating affiliate or referral payouts as marketing instead of as a margin reducer