gross margin

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Gross Profit Margin

A measure of how well a company controls its costs. It is calculated by dividing a company's profit by its revenues and expressing the result as a percentage. The higher the gross profit margin is, the better the company is thought to control costs. Investors use the gross profit margin to compare companies in the same industry and well as in different industries to determine what are the most profitable. It is also called the profit margin or simply the margin.

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.

gross margin

References in periodicals archive ?
Firms that sell goods to end users typically have gross margins below 6%.
While gross margin always goes down with the introduction of new product lines, the good news is that the only way is up:
Looking forward, Apple's gross margin performance will improve following the release of the second iPhone 5 series handset.
This is the area where most businesses can make significant gains in their gross margin percentage.
Important questions to ask include: Should you drop some of the lower gross margin products or services?
Surprisingly, the other four key drivers of margin maximization are often not comprehensively included in margin improvement programs, yet they will usually improve gross margin as much as, if not more than, operational improvements.
In reality, though, it is a roadmap for mediocre gross margin performance because it is difficult to determine a product's unit cost before determining its price, as the cost is dependent upon volume.
2% increase in the average dollar gross margin revenue per unit sold.