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.
In practice
Marketing targets on revenue instead of gross margin produce campaigns that grow while the business gains nothing.
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.