Gross Margin

The share of revenue left after the direct cost of delivering your product or service (cost of goods sold). Software has high gross margins; hardware and delivery-heavy businesses much lower.

Gross margin = (revenue - COGS) / revenue

Why it matters

Gross margin sets the ceiling on how profitable a business can ever be and how much it can spend to acquire customers. It is the first number investors check to judge the quality of a business model.

For example

A SaaS company keeps 85 rupees of every 100 in revenue after hosting and support costs, an 85 percent gross margin; a food-delivery startup might keep only 25.

Related terms

Cost of Goods Sold Contribution Margin Unit Economics

Go deeper

See how founders actually handle this on Money, pricing and metrics, part of the Starting Up hub.

eChai Partner Brands