Gross margin is the difference between the revenue and the cost of goods sold.
For example: a coffee shop selling coffee at $1.50, with the cost of goods sold at $0.50 (cost of cup, coffee, milk and sugar being $0.50), the gross margin would be 67% [($1.50 - $0.50) / $1.50].
For merchants offering professional services such as a hair salon, lawyers’ office etc. where labor is a direct cost, they include the cost of the labor and any products that they may use. Important to note, overhead costs are not to be included in gross margin.
Gross Margin %