Gross Margin

What is Gross Margin? — Definition

Gross Margin = (Revenue - Cost of Goods Sold) / Revenue × 100. It tells you how much profit a company retains from each dollar of sales before paying operating expenses like R&D, sales, and administrative costs. High gross margins give a company flexibility to invest in growth, withstand competition, and absorb cost inflation.

Gross margin varies enormously by industry. Software companies often have 70–90% gross margins because software costs almost nothing to replicate. Grocery stores might have margins of 25–30%, while auto manufacturers operate at 15–20%. This is why comparing gross margins across industries is misleading — you must compare within the same sector.

Example

Apple's gross margin expanded from about 38% in 2020 to over 44% in 2023, driven by the rapid growth of its high-margin Services segment (App Store, Apple Music, iCloud). This margin expansion was a major driver of Apple's stock appreciation despite slowing iPhone unit sales.

Gross margin trends are one of the first signals checked in BMInsider's 100X Insider Reports — sustained expansion often signals growing pricing power or a business model shift.