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ProfitabilityUpdated Jun 1, 2026

Gross Margin

Gross profit as a percent of revenue — how much of every $100 of sales is left after the direct cost of making the product.

Formula

Gross margin = gross profit ÷ revenue × 100%

Example

Two very different businesses

Setup
SaaS company: revenue $100M, gross profit $85M. Grocery chain: revenue $1B, gross profit $250M.
Calculation
SaaS: 85 ÷ 100 = 85%. Grocery: 250 ÷ 1,000 = 25%.
Takeaway
The SaaS business keeps $85 of every $100; the grocery keeps $25. Different industries, different normal.

What it is

Gross margin expresses gross profit as a percent of revenue. It tells you, for every $100 of sales, how many dollars the company keeps before paying for everything else.

Typical ranges

  • Software companies often run 70–90% (one extra customer costs almost nothing to serve).
  • Retail and grocery often run 20–35%.
  • Commodities can be in the single digits.

A widening margin is often a signal of pricing power or operating leverage; a shrinking margin is often the opposite.

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