Gross margin is the percentage of revenue left after cost of goods sold. Learn how gross margin sits inside a profit KPI tree.
Gross Margin is (Revenue − Cost of Goods Sold) ÷ Revenue, expressed as a percentage. It measures how efficiently a business produces and delivers its product before operating costs. In a profit KPI tree, gross margin is the first ratio applied to revenue: Gross Profit = Revenue × Gross Margin. Margin compression is usually traceable to one of three drivers: input cost inflation, price discounting, or unfavorable product mix.