Gross margin is revenue minus the cost of goods sold, usually shown as a percentage of revenue: the share of each sales dollar left after the direct cost of what was sold. Computed per line, customer or business.
Gross margin is revenue minus the cost of goods sold (COGS), and gross margin percentage is that figure divided by revenue. It 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.
Gross margin = revenue − cost of goods sold. Gross margin % = (revenue − cost of goods sold) ÷ revenue × 100. Computed per line, per customer and in total.
A customer with $90,000 of revenue and $67,500 of cost of goods has a gross margin of $90,000 − $67,500 = $22,500, and a gross margin percentage of $22,500 ÷ $90,000 = 25 percent.
Used to rank customers. It ignores what each costs to serve, which can exceed the margin.
For the formula, what goes into cost of goods sold and a worked example, see gross profit margin, or work it out with the profit margin calculator.