Gross margin
Strategy and planning
Strategy and planning
Gross margin is revenue minus the direct cost of what you sell, expressed as a percentage of revenue.
It determines what you may spend on marketing. At 30% gross margin, every euro of revenue is only worth 30 cents towards ads, staff and profit.
Count direct costs honestly: purchasing, shipping, transaction fees, returns and, for services, the hours actually spent.
Tip
Set marketing targets on gross margin rather than revenue. That way growing campaigns actually benefit the business.
Related terms
- MarginMargin is what's left of a sale after direct costs. It's the number that decides how much you may spend on marketing.
- EBITEBIT is profit before interest and tax: the result from normal operations, including depreciation.
- EBITDAEBITDA is profit before interest, tax, depreciation and amortisation — an approximation of what operations generate.
- ACoSACoS (Advertising Cost of Sale) is ad spend divided by the revenue those ads generate, as a percentage.