Glossary / Gross Margin
Gross Margin
Gross margin is the share of revenue left after the direct cost of delivering the work. Subtract cost of goods from revenue, divide by revenue, and multiply by a hundred.
Work out yours
Gross margin = (revenue − direct costs) ÷ revenue × 100
40%
You keep $4,180 of every $10,450 before overhead.
Why it matters
Margin decides how much of a revenue increase you actually feel. On thirty percent margins, a twenty percent revenue increase is a sixty seven percent increase in what reaches you. The top line moves a little and your life moves a lot, which is why chasing revenue without knowing margin is guesswork.
Where people get it wrong
Direct costs only. Rent, software, and your own salary are overhead and belong below the gross margin line, not inside it.
If this number is not where you want it
Most owners have never separated direct cost from overhead, which makes every pricing decision a guess. Getting the books into a shape a CPA would recognise fixes that permanently.
Owner Operating System, $250 one time
See what it would take, free →About Owner Operating SystemRelated terms
- Break-Even PointYour break-even point is how much you must sell to cover all your costs.
- Average TicketAverage ticket is what a typical customer or job brings in before costs.
- Effective Hourly RateYour effective hourly rate is what an hour of your own time is actually worth to the business.
- Payback PeriodPayback period is how long it takes a new customer to pay back what they cost to acquire.
Common questions
+ What is a good gross margin?
Service businesses often run fifty to seventy percent. Trades with material costs run lower. What matters is whether yours is rising or falling, not how it compares to a stranger.
Part of the small business glossary. All six free calculators are here.