Gross margin %
The share of every sales euro left after the direct cost of making or buying what you sold.
01 What it is
Why anyone looks at this number
The share of every sales euro left after the direct cost of making or buying what you sold.
It is the first honest read on whether the thing you sell is worth selling. Everything below it — overheads, marketing, R&D — is paid for out of this number.
02 The formula
How it is worked out
Gross margin % = (net_revenue − cogs) ÷ net_revenue grain : month × product × business unit unit : percentage source : General ledger and product costing in the ERP
Both sides must cover the same rows. If credit notes reduce revenue but not cost, margin quietly overstates itself every month a return is processed.
03 Worked example
The same number, with real inputs
| Net revenue | €50.0m |
| Direct cost (COGS) | €32.0m |
| Calculation | (50.0 − 32.0) ÷ 50.0 |
| Result | 36.0% |
36 cents in every euro is available to cover overheads and profit. If that slips to 34% on flat revenue, €1.0m of profit has gone — before anyone touches opex.
04 What moves it
Four things that actually change this number
Price realisation
What you keep after rebates and discounts, not the list price.
Input cost
Material, labour and inbound freight, which move with markets and with yield.
Product mix
Selling more of the high-margin lines lifts the average without any price change.
Scrap and rework
Waste is direct cost that never reached a customer.
05 Where the number lives
The system, the record and the fields
| System of record | Key record | Fields you need |
|---|---|---|
| General ledger and product costing in the ERP | Invoice line joined to Material cost estimate | net_amount, billed_qty, standard_cost, moving_average_price |
Both sides must cover the same rows. If credit notes reduce revenue but not cost, margin quietly overstates itself every month a return is processed.
06 How it goes wrong
Three ways this metric misleads people
Cost of sales includes overhead
Allocated factory overhead gets pushed into COGS, so margin moves whenever the allocation base changes.
Fix: Keep the definition to direct cost, and put overhead in operating cost where it can be owned.Comparing across mixed portfolios
A group-level margin blends products with 60% and 12% margins, so the average tells you nothing.
Fix: Report it at product or category level and let the mix effect show separately.Revenue measured gross
List revenue in the numerator and net cost below it inflates the percentage.
Fix: Use net revenue on both sides, after rebates, allowances and credit notes.08 Questions
Frequently asked
What is a good gross margin?
It depends entirely on the model. Software often runs above 75%, distribution can be healthy in single digits. The useful comparison is your own trend and your direct competitors, not a cross-industry average.
Is gross margin the same as contribution margin?
No. Gross margin deducts the cost of goods sold, which usually includes some fixed production cost. Contribution margin deducts only costs that vary with the unit, which is what you need for pricing and volume decisions.
One definition, everywhere it is used
SCIKIQ stores this metric once and serves it to every dashboard, board pack and agent that asks.