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Gross Margin

The percentage of revenue remaining after subtracting the direct cost of producing goods or services — a measure of production efficiency and pricing power.

Gross margin is gross profit divided by revenue, expressed as a percentage. If a restaurant generates $50,000 in monthly revenue and spends $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 $0.65 of every revenue dollar is available to cover operating expenses (rent, utilities, salaries, marketing) and produce profit. A 45% gross margin means only $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.

Relations

Date created
Date updated
Determined by
Cost of goods sold
Measures
Income statement
Part of
Business disciplines accounting terms
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Cite

@misc{emsenn2026-gross-margin,
  author    = {emsenn},
  title     = {Gross Margin},
  year      = {2026},
  note      = {The percentage of revenue remaining after subtracting the direct cost of producing goods or services — a measure of production efficiency and pricing power.},
  url       = {https://emsenn.net/library/business/domains/accounting/terms/gross-margin/},
  publisher = {emsenn.net},
  license   = {CC BY-SA 4.0}
}