What is Gross Margin & Gross Profit?

Gross Margin is the difference between revenue and cost of goods sold, or COGS, divided by revenue, expressed as a percentage. Generally, it is calculated as the selling price of an item, less the cost of goods sold (production or acquisition costs, essentially).

Gross Profit is often used interchangeably with Gross Margin, but the terms are different. When speaking about a dollar amount, it is technically correct to use the term Gross Profit; when referring to a percentage or ratio, it is correct to use Gross Margin. In other words, Gross Margin is a % value, while Gross Profit is a $ value. You should know both your Gross Margin and Gross Profit before talking to a funding source. These are also great business management tools.

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