Gross margin

Revenue less the cost of the goods or services sold, per line, customer or business.

DefinitionRevenue less the cost of the goods or services sold, per line, customer or business.

Gross margin is the profit on the product before any cost of serving the customer. As a percentage it is usually highest on small accounts, which buy at list, and that is why ranking customers by gross margin percentage misleads: it ignores what each customer costs to deliver to, take orders from and visit.

How it is computed

Revenue minus the cost of the goods or services sold, per line, per customer and in total.

Example

A customer with $90,000 of revenue and $67,500 of cost of goods has a gross margin of $22,500, 25 percent.

Where it goes wrong

Used to rank customers. It ignores what each costs to serve, which can exceed the margin.

Articles that use this term

Board and management reporting

Cost to serve by industry: what the account costs beyond the goods, on twelve desks

Cost to serve is what it takes to serve an account beyond the product, and what that is differs by desk: drops and returns for a distributor, adviser hours for a wealth firm, support tickets for a SaaS company, pursuit hours for a consultancy, detention charges for a forwarder. This hub gives, for twelve industries, the cost components, the rate each is stated at, the source, and the measure it feeds, with the guide for each.

16 Sept 20263 min read Board and management reporting · Distributors

Margin by account: the accounts that buy the most and earn the least

How a distributor computes gross margin per account from invoice lines and cost, adds the cost to serve from delivery and returns, ranks accounts by margin rather than revenue, and finds the large accounts whose price agreements, delivery frequency and returns leave less than the small ones, with the identity that ties the account margins to the ledger.

16 Sept 20262 min read Board and management reporting · Freight brokers and 3PLs

Margin per load by shipper and lane: the freight that moves and earns nothing

How a freight broker measures gross margin per load from the load ledger's customer rate and carrier cost, rolls it up by shipper and by lane, finds the shipper-lane pairs at or below zero margin that volume was hiding, separates contracted lanes priced wrong from spot lanes bought badly, and ranks the pairs by the margin that a repricing or a carrier change would recover.

16 Sept 20262 min read How-to guides

Sales analytics KPI definitions: thirty measures on one page, each with its formula

Thirty sales and commercial measures defined in one sentence each with the formula, grouped by what they describe: coverage and activity, wallet and depth, retention and churn, pipeline and forecast, concentration and reporting, and data quality. Each links to a full definition. Written so that a team can adopt the definitions as its own, version them, and stop arguing about what a number means.

16 Sept 20264 min read Board and management reporting

Ten questions a CFO asks about sales data, and the table that answers each

The ten questions a chief financial officer puts to the commercial team, does the sales number reconcile, how concentrated are we, what is the base worth, is the forecast believable, where is revenue leaking, what does it cost to serve the top accounts, are credits under control, is the pipeline real, what did the discounting cost, and what changed, each with the computed table that answers it, the identity that makes the answer trustworthy, and the answer a CFO should refuse.

16 Sept 20263 min read Wallet share and penetration · Distributors

Ten questions a distributor's commercial director asks, and the table that answers each

The ten questions a distributor's commercial director puts to the branch and sales managers, which accounts are dormant and worth what, which branches leak category share, which accounts earn least after cost to serve, which take too many drops, which lines were lost to stock-outs, where is private label under-penetrated, which reps cover their books, what are the unagreed discounts, which counter customers deserve an account, and what changed, each with the table from the invoice lines and the delivery log, and the answer to send back.

16 Sept 20263 min read