Gross Margin Definition

Definition
Gross margin is computed by deducting Cost of Goods Sold (COGS) from the business’s incoming revenue.

Expanded Definition
Gross margin is usually recorded on the profit and loss statement. The only business expenses which are used to compute gross margin are those that are directly related to the cost of the goods sold (COGS). Once the gross margin is determined, it can be used to set prices, identify ways to save on costs, or predict risks for a business. Gross margin is important when assessing a business’s profitability.

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