What is gross margin?

Gross margin shows how much of each sale is left after paying for the product itself. The formula is (sales minus COGS) divided by sales, times 100. If a jacket sells for $100 and cost $55, the gross profit is $45 and the gross margin is 45%. That $45 has to pay for rent, wages and everything else, with what remains being net profit.

Margin and markup are easy to confuse because they use the same two numbers. Margin divides the profit by the selling price; markup divides it by the cost. The jacket has a 45% margin but an 82% markup. Pricing with markup and then reporting margin, or the reverse, is one of the most common reasons owners think they are making more than they are.

Margin is most useful by product and by category. A store can have a healthy overall margin while one category quietly sells at a loss. Watch for margin erosion from discounts, unrecorded price increases from suppliers, and shrinkage, all of which raise the effective cost or lower the effective price without any change on the shelf tag.

In SeroPOS the back office Profit / Loss report shows gross profit and net profit for a date range, with tabs to see profit by product, category, brand, location, invoice, date, customer and day. The Stock Report shows the value of stock on hand at purchase and sale price, the potential profit and the profit margin percentage, so you can see margin before the stock sells as well as after.