Finance and accounting
Gross profit and gross margin
Revenue minus the cost of goods sold, as an amount or a percent.
Facts checked against sources onWhat does Gross profit and gross margin mean?
Gross profit is revenue minus cost of goods sold. Gross margin is gross profit divided by revenue. Revenue 100 and COGS 60 give gross profit of 40 and a gross margin of 40%. Gross margin differs from contribution margin: COGS can include some fixed production costs, such as factory depreciation, and leaves out variable selling costs, such as sales commissions and delivery.
Where does it come up in case interview prep?
- Cost structures, margins and capital intensity across industriesLesson in How industries work: the toolkit
- The profit and loss statement, line by lineLesson in Business basics for non-business learners
- Brands, trust and pricing powerLesson in Why some businesses win: competitive advantage and the economics of strategy
- Reading a real results release: Inditex, FY2025Lesson in Reading a business through its numbers: the three statements, cash and value
- Marketing return: CAC, payback, incrementality, and why last-click credit misleadsLesson in Customers and growth: the economics of marketing
- Incentives: people do what they are paid to doLesson in People, rules and responsibility: organisation, regulation and sustainability
- Using people, rules and responsibility in a caseLesson in People, rules and responsibility: organisation, regulation and sustainability
- Revenue models, cost structure, unit economics and operationsLesson in Pharma, biotech and medical devices
Related terms
- COGS (cost of goods sold)The direct cost of making the products that were sold.
- Contribution marginRevenue minus all variable costs, as an amount or a percent of revenue.
- EBIT and operating profitProfit from operations, before interest and tax.
- ProfitThe money left over after costs. Revenue minus cost.
- RevenueMoney earned from sales, before costs.
- CostWhat it takes to make and sell the product in a period.
- Fixed costA cost that stays the same when volume changes, within a normal range.
- Variable costA cost that rises and falls with how much you make.
Learn it in context
See Gross profit and gross margin at work in a lesson from How industries work: the toolkit, with checks as you go.
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