what is gross margin 
gross margin is the percentage of a company s revenue that s retained after direct expenses such as labor and materials have been subtracted it s an important profitability measure that looks at a company s gross profit as compared to its revenue gross profit is determined by subtracting the cost of goods sold from revenue the higher the gross margin the more revenue a company retains it can then use the revenue to pay other costs or satisfy debt obligations investopedia tara anandformula and calculation of gross margingross margin net sales cogs begin aligned text gross margin text net sales text cogs end aligned gross margin net sales cogs net sales is the equivalent to revenue or the total amount of money generated from sales for the period it can also be referred to as net sales because it can include discounts and deductions from returned merchandise revenue is typically called the top line because it appears at the top of the income statement costs are subtracted from revenue to calculate net income or the bottom line cogs is cost of goods sold the direct costs associated with producing goods include both direct labor costs and any costs of materials used in producing or manufacturing a company s products imagine that a business collects 200 000 in sales revenue let s assume that the cost of goods consists of the 100 000 it spends on manufacturing supplies the gross profit is therefore 100 000 after subtracting its cogs from sales the gross margin is 50 or 200 000 100 000 200 000 