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Gross profit expressed as a percentage of revenue, calculated as revenue minus cost of goods sold, divided by revenue, multiplied by 100.

Gross margin shows how much of each sale is left to cover operating expenses and profit, so it guides pricing, discounting, supplier negotiations and decisions about which products or services to scale.

An agency bills $250,000 in a quarter, and direct delivery costs such as contractor fees and media tools total $150,000. Gross profit is $100,000, and the gross profit margin is ($100,000 ÷ $250,000) × 100 = 40%.

Gross margin ignores operating expenses such as sales, marketing and administration, so a high margin does not guarantee profitability. Comparisons are distorted when companies classify costs differently between COGS and operating expenses.

Gross profit margin is calculated as revenue minus cost of goods sold, divided by revenue, multiplied by 100. Cost of goods sold includes direct costs of producing goods or delivering services, such as materials, direct labor and hosting for a software product, but excludes overhead. It differs from markup, which divides gross profit by cost rather than by revenue.