gross profit margin

Definition


Gross profit margin represents the percentage of revenue that remains after subtracting the cost of goods sold (COGS), calculated as (Net Sales – COGS) divided by Net Sales. It reflects a company’s production efficiency and pricing strategy, indicating how much revenue is available to cover operating expenses, interest, and taxes. A high gross margin suggests strong pricing power, cost control, or favorable input cost management, whereas a declining margin can signal rising costs, increased competition, or product mix shifts. Companies benchmark gross margins against historical performance and industry peers to identify opportunities for process improvements, supplier negotiations, or pricing adjustments that drive profitability and support sustainable growth.