Gross Margin.

In plain English

Gross margin measures how much money a product or service leaves behind after you cover its direct costs, shown as a percentage of revenue. Direct costs (also called cost of goods sold) are the expenses tied straight to producing what you sell, like materials, the wholesale price of inventory, and the labor that makes each unit. Gross margin does not subtract overhead like rent, marketing, or your salary. It tells you whether the core thing you sell is even profitable before the rest of the business takes its cut.

01Why it matters

If your gross margin is thin, every other cost (rent, ads, your own pay) eats into a small pool, and you can be busy yet broke. It is the first number that tells you whether your pricing actually works.

02The math, step by step

You sell handmade candles for $30 each. The wax, wick, jar, and label cost $12 per candle. Gross profit per candle is $30 minus $12, which is $18. Gross margin is $18 divided by $30, which equals 0.60, or 60 percent. For every dollar of candle sales, 60 cents is left to cover everything else and to keep as profit.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT