Gross Margin
Also known as: Gross Profit Margin
Gross margin is the share of revenue left after the direct cost of delivering it, expressed as a percentage.
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What it actually means
Gross margin is gross profit divided by revenue. It is the cleanest single measure of whether your pricing works, because it strips out overhead and asks only whether each sale carries its own weight. It also sets the ceiling on what you can afford to spend acquiring a customer: if a job leaves forty cents of every dollar, a customer worth $1,000 in revenue contributes $400 toward marketing, overhead, and profit combined. Margin drifts downward quietly as supplier costs rise and prices stay put, which is why tracking it month over month catches problems a revenue number never will.
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$40,000 of revenue with $16,000 of COGS is $24,000 gross profit — a 60% gross margin.
Gross margin is the number that decides what a lead is allowed to cost. A business at 65% margin can profitably pay far more per booked customer than one at 25%, and the two need completely different ad budgets.
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Numbers and costs
Where it matters most
Related terms
Cost of goods sold is the direct cost of delivering what you sold — materials, products, and the labor tied to the job itself.
A marketing P&L is a profit and loss view of your advertising: the revenue your campaigns produced in a period, minus ad spend, agency fees, and the cost of delivering what you sold, ending with the profit or loss the marketing actually made.
CAC is the total cost to acquire one new customer, including ad spend and all sales and marketing expenses, divided by customers won.
LTV is the total revenue (or profit) a customer generates over the entire span of their relationship with your business.
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