Gross Margin


Gross Margin, perhaps our favorite accounting metric, is calculated by subtracting what you product or service costs you (Cost of Sales), from what you sell your product for (Revenue). We typically express this as a % of Revenue.

The higher the gross margin the better. A high gross margin gives the entrepreneur more room for error in running the business. Low gross margin businesses, like distributorships, rely on high volume revenue and keeping other costs low, to turn a profit.

Keep an eye on the trend in your gross margin over time, with the goal of making continuous improvement via better material sourcing + discovering the maximum price you can charge for your goods and services.