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Gross margin

   Also found in: Dictionary/thesaurus, Medical, Legal, Acronyms, Encyclopedia, Wikipedia, Hutchinson 0.07 sec.
gross margin

Gross margin. Gross margin is the percentage by which profits exceed production costs. To find gross margin you divide sales minus production costs by sales.

For example, if you want to calculate your gross margin on selling handmade scarves, you need to know how much you spent creating the scarves, and what you collected by selling them.

If you sold 10 scarves at $15 a piece, and spent $8 per scarf to make them, your gross margin would be 46.7%, or $150 in sales minus $80 in production costs divided by $150. Gross margin is not the same as gross profit, which is simply sales minus costs. In this example, it's $70, or $150 minus $80.

If you're doing research on a company you're considering as an investment, you can look at the gross margin to help you see how efficiently it uses its resources.

If the company has a higher gross margin than its competition, it can command higher prices or spend less on production. That might mean it can allocate more resources to developing new products or pursuing other projects.



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A very useful approach to improving a company's profit performance is to use new gross margin management methodology.
rental revenue, gross profit and gross margin increased in the fourth quarter 2006 and in the year ended December 31, 2006, compared to the same periods in the prior year, due primarily to improvement in market conditions that led to an improvement in pricing and an increase in contracted horsepower.
Gross margin dollars in the third quarter increased 14% to $78.
 
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