{"id":37907,"date":"2023-10-16T13:28:07","date_gmt":"2023-10-16T13:28:07","guid":{"rendered":"https:\/\/swoopfunding.com\/ng\/?post_type=business-glossary&p=37907"},"modified":"2024-03-26T15:00:54","modified_gmt":"2024-03-26T15:00:54","slug":"gross-margin","status":"publish","type":"business-glossary","link":"https:\/\/swoopfunding.com\/ng\/business-glossary\/gross-margin\/","title":{"rendered":"Gross margin"},"content":{"rendered":"

Definition<\/h3>\n

Gross margin, also known as gross profit<\/a> margin, is a financial metric that measures the profitability of a company’s core operations, specifically its ability to generate revenue after deducting the direct costs associated with producing or providing goods and services. <\/span><\/p>\n

What is gross margin?<\/h3>\n

Gross margin is expressed as a percentage and is a critical indicator of a company’s operational efficiency and pricing strategy.<\/span><\/p>\n

Gross margin is calculated using the following formula:<\/span><\/p>\n

Gross margin = (revenue – cost of goods sold) x 100%<\/span><\/p>\n

A higher gross margin percentage indicates that a company is able to retain a larger portion of its revenue after accounting for the costs directly associated with production. This suggests strong operational efficiency. On the other hand, a lower gross margin may indicate higher production costs relative to revenue, which can potentially impact profitability.<\/span><\/p>\n

Factors impacting gross margin:<\/span><\/p>\n

    \n
  1. Pricing strategy<\/b>: Higher prices can lead to increased gross margin if it doesn’t significantly impact sales volume.<\/span><\/li>\n
  2. Cost efficiency<\/b>: Efficient procurement, production, and inventory management can help reduce cost of goods sold, positively affecting gross margin.<\/span><\/li>\n
  3. Economies of scale<\/b>: Larger production volumes can lead to lower per-unit production costs, potentially increasing gross margin.<\/span><\/li>\n
  4. Quality control<\/b>: Maintaining high product quality can reduce defects and waste, positively impacting gross margin.<\/span><\/li>\n<\/ol>\n

    While gross margin provides insight into core operational profitability, it does not account for other operating expenses such as marketing, research and development, and administrative costs.<\/span><\/p>\n

    Example of gross margin<\/h3>\n

    Let’s say Company XYZ is a retail business that sells electronics. In a given quarter, the company has the following financial information:<\/p>\n

      \n
    • Total revenue:<\/strong> \u20a61,000,000<\/li>\n
    • Cost of goods sold (COGS):<\/strong>\u00a0\u20a6600,000<\/li>\n<\/ul>\n

      Then we can use the formula for calculating gross margin:<\/p>\n

      Gross margin <\/span>= <\/span><\/span>(\u20a6<\/span><\/span>1,<\/span>000,<\/span>000 <\/span><\/span>\u2212 \u20a6<\/span>600,<\/span>000<\/span><\/span><\/span>\u200b<\/span><\/span><\/span><\/span><\/span>) <\/span><\/span><\/span>\u00d7 <\/span><\/span>100 <\/span>= <\/span><\/span>40%<\/span><\/span><\/span><\/span><\/span><\/p>\n

      In this example, Company XYZ’s gross margin is 40%. This means that for every dollar of revenue generated, the company retains 40 cents after covering the direct costs associated with producing or purchasing the goods sold.<\/p>\n","protected":false},"author":88,"template":"","class_list":["post-37907","business-glossary","type-business-glossary","status-publish","hentry"],"acf":[],"featured_image_urls_v2":{"full":"","thumbnail":"","medium":"","medium_large":"","large":"","1536x1536":"","2048x2048":"","image_blog":"","image_podcast":"","image_banking":"","image_blog_internal":"","image_blog_medium":"","image_single_banking":""},"post_excerpt_stackable_v2":"

      Definition Gross margin, also known as gross profit margin, is a financial metric that measures the profitability of a company’s core operations, specifically its ability to generate revenue after deducting the direct costs associated with producing or providing goods and services. What is gross margin? Gross margin is expressed as a percentage and is a critical indicator of a company’s operational efficiency and pricing strategy. Gross margin is calculated using the following formula: Gross margin = (revenue – cost of goods sold) x 100% A higher gross margin percentage indicates that a company is able to retain a larger portion…<\/p>\n","category_list_v2":"","author_info_v2":{"name":"AI","url":"https:\/\/swoopfunding.com\/ng\/author\/artificial-intelligence\/"},"comments_num_v2":"0 comments","_links":{"self":[{"href":"https:\/\/swoopfunding.com\/ng\/wp-json\/wp\/v2\/business-glossary\/37907"}],"collection":[{"href":"https:\/\/swoopfunding.com\/ng\/wp-json\/wp\/v2\/business-glossary"}],"about":[{"href":"https:\/\/swoopfunding.com\/ng\/wp-json\/wp\/v2\/types\/business-glossary"}],"author":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/ng\/wp-json\/wp\/v2\/users\/88"}],"wp:attachment":[{"href":"https:\/\/swoopfunding.com\/ng\/wp-json\/wp\/v2\/media?parent=37907"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}