Glossary · Profit and analysis
Gross margin
Gross margin is the share of sales left after paying the direct cost of what was sold. It is gross profit, sales minus cost of goods sold, divided by sales and shown as a percentage. It tells you how much of each sales dollar is available to cover overhead and profit.
Glossary / Gross margin · Also called Gross profit margin, Gross profit
How it works
Gross profit is a dollar amount; gross margin is that amount as a percentage of sales. A business with $200,000 of sales and $120,000 of cost of goods sold has $80,000 of gross profit and a 40% gross margin.
Gross margin is the first number to watch when prices or costs change. If suppliers raise prices and you do not, margin falls. Comparing margins by product or by job shows which lines earn their keep.
Margin is not the same as markup. Markup divides gross profit by cost; margin divides it by price. The same item can have a 50% markup and a 33% margin.
Worked example: Margin on a single product and on the year
A shop buys a lamp for $60 and sells it for $100. Gross profit is $40 and gross margin is 40% ($40 ÷ $100).
For the year, the shop has $250,000 of sales and $150,000 of cost of goods sold. Gross profit is $100,000 and gross margin is 40%. If overhead is $70,000, net profit before tax is $30,000.
In AcboBooks
In AcboBooks, the profit and loss shows income, cost of goods sold and gross profit, with cost of goods sold posted automatically from inventory sales at average cost.
Related terms
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Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.
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