Reporting
Gross Margin
Definition
Revenue minus cost of goods sold (COGS), expressed as a percentage of revenue. It measures the profitability of your core product or service before operating expenses, overhead, and taxes.
Why it matters
Gross margin is the cleanest signal of pricing power and cost discipline. Owners who track only net income miss the underlying mix shifts — service line A is bleeding money, service line B is subsidizing it. Gross margin by product, service line, or customer segment is one of the highest-leverage metrics in any business.
Example
A managed services firm has a blended 42% gross margin. Decomposing by service line reveals managed IT at 58%, project work at 48%, and a legacy hosting product at 12% — a clear signal to either reprice or sunset the legacy line.