Gross margin

What it means

Gross margin is revenue minus the direct costs of producing or delivering whatever was sold — materials, direct labour, or the wholesale cost of goods — expressed as a percentage of revenue. It doesn't yet account for overhead like rent, marketing, or administrative salaries.

Why it matters

A business can be growing revenue quickly and still be losing money if gross margin is too thin — growth amplifies whatever is already true about a business, so a low-margin product or service tends to become a bigger problem, not a smaller one, at higher volume.

Common misunderstandings

• •Higher revenue doesn't automatically mean higher profit — a large low-margin contract can generate less actual profit than a smaller high-margin one.
• •Gross margin isn't the same as net profit margin, which also subtracts overhead costs like rent and administrative salaries.

Where you'll see it

In any conversation about pricing, growth planning, or whether a specific product, service, or client is actually worth pursuing.