Gross margin is the portion of money leftover from sales revenues after taking out the cost of goods sold (COGS). This is generally expressed as a percentage.

Here’s how you get to it:

Gross (profit) Margin = (Revenue-COGS) / Revenue

The number you come up with represents the percentage of revenue left over from the sale of products (or services) after accounting for the cost of those products. The higher this percentage, the better a company is able to cover its operating expenses, which results in a healthier business.

For a full glossary of bookkeeping terms, check out our blog.