Investing term
What is Gross margin?
Gross profit as a percentage of revenue — how much of every dollar of revenue survives direct costs.
Gross margin is gross profit as a percentage of revenue — how much of each sales dollar survives the direct cost of producing the product. A company with $100M revenue and $40M gross profit has a 40% gross margin, meaning 40 cents of every sales dollar is left after production costs.
It's a window into pricing power and competitive strength. High, stable gross margins often signal a strong brand, a differentiated product, or efficient operations — the company can charge a premium or produce cheaply, keeping more of each sale. Thin or falling gross margins point to commodity-like products, intense competition, or rising costs. Because gross margin sits near the top of the income statement, it sets the ceiling on all the profitability below it: a business can't be highly profitable overall if it's barely profitable on the product itself.
Gross margin is gross profit as a share of revenue — how much of each sales dollar survives production cost. High, stable margins signal a brand or cost advantage; compare only within an industry.
For example
A luxury brand with a 70% gross margin keeps far more of each sales dollar than a supermarket at 25% — a direct read on their very different pricing power.
Learn it by doing
That's Gross margin in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 14, Reading Financial Statements).
Try the free lesson →Why it matters to you
Gross margin matters because it's one of the clearest signals of a company's competitive position and pricing power. A high, durable gross margin usually reflects something special — a brand, a moat, a cost advantage — that lets the company keep more of every sale. Watching it over time reveals whether that advantage is strengthening or eroding, often before the effect reaches the bottom line. It's a favourite first metric for judging business quality.
⚠ Comparing gross margins across different industries
Gross margins vary enormously by industry — software can exceed 80% while grocery retail sits near 25% — so comparing them across sectors is meaningless. A 'low' margin for one industry is normal for another. Gross margin is best compared within an industry and over time for the same company; judging a business by an out-of-context margin number misleads.