Formula
gross margin = (revenue − cost of revenue) / revenue
Gross margin
Gross margin is the percentage of revenue left after the direct costs of delivering the product.
Benchmark
Software businesses typically run 70 to 85 percent. Services and hardware run considerably lower.
Gross margin decides how much of each euro of revenue is available for everything else: sales, engineering, and eventually profit.
It also belongs inside lifetime value. Computing LTV on revenue rather than gross profit overstates what a customer is worth, often by a third or more.
Keep this number live
Plainhub computes gross margin from money you record in plain words, so it is current when you need it rather than the night before a board meeting.
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