Gross margin
Gross margin is what remains of the selling price after deducting the costs directly tied to the product or service (purchasing, production, delivery). It is often expressed as a percentage.
The formula
Gross margin (%) = ((Selling price − Direct costs) ÷ Selling price) × 100
A concrete example
Example
A product sold for $100 that costs $40 to produce yields $60 of gross margin, or 60%.
Why it matters
Gross margin sets your advertising break-even point: it is what tells you how much you can spend to acquire a customer. Two companies with the same revenue but different margins do not have the same room to move.