Gross Margin

In finance, the term gross margin denotes the portion of a company’s revenues which are not expended on production costs. The costs of producing and selling products and services is known as the cost of goods sold (COGS). A company’s gross margin is found by subtracting its COGS from its gross revenue.

Companies which produce labor-intensive or material-intensive products will typically have a high COGS, and therefore a smaller gross margin. Companies which produce high-value products which do not require labor-intensive or material-intensive production (such as software or services) typically have a low COGS, and therefore a larger gross margin.

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