Gross margin is the percentage of revenue left after subtracting the direct costs of producing goods or services. It measures how much profit a company makes on each dollar of sales before accounting for operating expenses like salaries and rent.
A company generates $100 million in revenue and spends $60 million on direct production costs, leaving $40 million in gross profit. Its gross margin is 40 percent. This means 40 cents of every sales dollar remains after paying for the cost of goods.
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