Gross margin is set by pricing and product cost, and it caps everything downstream: discounts, shipping and advertising all come out of it. Do not confuse it with markup, which divides profit by cost rather than by price.
Formula
Gross margin = (Price − Product cost) ÷ Price × 100
Example
A product sold at ₹1,000 that costs ₹400 has a 60% gross margin and a 150% markup.
Margin from cost and price, or the price you need for a target margin, with tax handled properly.
Related terms
- MarkupMarkup is the amount added to the cost of a product to set its price, expressed as a percentage of cost.
- Contribution margin (CM1, CM2, CM3)Contribution margin is the revenue left from a sale after the variable costs of making and delivering it.
Where this comes up
ROAS is not a business metricReturn on ad spend tells you how the platform sees your campaigns. Contribution margin tells you whether the business is better off. Here is how to run paid media on the second.Part of the growth marketing glossary by Shiva Sharma.