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Gross margin

Last updated

Quick Answer

The margin left after the direct cost of delivering the work, before overhead.1,2

Formula

(revenue - COGS) / revenue

What it is

The margin left after the direct cost of delivering the work, before overhead. In an acquired business the interesting question is usually not the company-wide figure but whether it can be computed by service line, crew or branch at all — which depends on how the chart of accounts was built, and the one you inherited was built to file a tax return.1,2

Operational context

What good looks like

Why It Matters

It is the first place a pricing problem becomes visible and the first place a costing problem hides. The controller owns it, and the reason to name an owner is that gross margin moves for reasons owned by three different people — pricing, labour and purchasing — and somebody has to be accountable for noticing.1

Related Questions

How do I rebuild a chart of accounts after buying a business?

Design it against the numbers you intend to run the business on, and do it before you migrate anything.

Browse all questions →

Tools & Resources

Formula Page →Calculators →

Frequently Asked Questions

What is Gross margin in venture capital?

The margin left after the direct cost of delivering the work, before overhead. In an acquired business the interesting question is usually not the company-wide figure but whether it can be computed by service line, crew or branch at all — which depends on how the chart of accounts was built, and...

Why is Gross margin important for startups?

Understanding Gross margin is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.

Sources & References

  1. 1.B2-01 — Permanent Equity content libraryPermanent Equity content libraryPractitioner primary(Gross margin is revenue minus cost of goods sold, divided by revenue.)secondary · B2 · kpi-instrumentation · metric
  2. 2.A2-10 — Deltek Clarity A&E Industry Study, 47th annual, 896 firms, FY2025Deltek Clarity A&E Industry Study, 47th annual, 896 firms, FY2025Academic / institutional primary(Gross margin is revenue minus cost of goods sold, divided by revenue.)primary · A2 · kpi-instrumentation · metric

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