Gross margin
Sales revenue less the direct cost of goods sold, shown as an amount or a percentage of sales.
What it means
Gross margin is your sales revenue minus the direct cost of producing or buying what you sold (the cost of goods sold). It can be expressed as a dollar amount or, more usefully for comparison, as a percentage of sales.
Gross margin shows how much is left from each sale to cover overheads and leave a profit. It sits above operating expenses, so it isolates the profitability of the core trading activity.
Why it matters
Thin gross margins leave little room to absorb late payments or bad debts, which makes prompt collection even more important. A single written-off invoice can wipe out the margin on several good sales. See net profit for the bottom line, and use our free tools to see how slow payers eat into margin.
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