Gross margin is gross profit divided by revenue, expressed as a percentage. If a restaurant generates 17,500 on food and direct labor (cost of goods sold), gross profit is $32,500 and gross margin is 65%.
Gross margin reveals how efficiently the business converts inputs into revenue. A 65% gross margin means 0.45 is available — requiring either higher revenue or lower operating expenses to be viable.
Gross margin varies by industry: full-service restaurants typically run 60–70%, fast food 65–75%, retail 25–50%, software 70–90%. Within an industry, gross margin reflects pricing strategy, cost control, product mix, and supply chain efficiency. Tracking gross margin monthly reveals trends before they become crises — a declining margin signals rising input costs, portion creep, waste, or pricing that hasn’t kept pace with costs.
See Reading Financial Statements and Food Costing and Waste Reduction.