What is Gross Margin?

Gross margin, is of course a measure of profitability. And it's a key measure on the P&L where you take total revenues and subtract out the direct costs or the COGS — cost of goods sold — to get to your first profit metric which is gross profit. And then if you divide that gross profit dollar amount by the sales revenue it will give you the margin or the percentage of profit that remains after those direct costs are deducted. It's about how effectively we are creating perception of value around our products, which is going to help us strengthen our pricing, as well as how well we are doing at negotiating the material costs, or other direct costs that go into the business. So from a leadership standpoint, it's all about creating that perception of value that's going to strengthen pricing, and managing the direct costs that will strengthen that margin. And so gross margin gives us insight into both of those. You find gross profit on the P&L, subtract out their direct costs, and that will then get you to your gross profit number, and then at that point you divide that dollar amount by the sales — total revenues and it will give you the margin, or the percentage, which is your gross margin. Gross margin gives great insights into a couple key things. First of all, the strength of our pricing. How able is a company to build its pricing structure, as well as insights into the cost structure. How well are they doing at negotiating or managing the direct costs of their products and services? So as the first profit metric on the P&L, it's really giving insights into pricing and direct costs.

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[Nick-tonz]

So what’s a good gross margin profit % for business?