What is Gross Margin?
Gross Margin is the percentage of revenue remaining after deducting the direct cost of goods sold (COGS), indicating the profitability of core business activities before overheads.
Gross Margin Formula
Gross Margin % = (Revenue − COGS) / Revenue × 100%. COGS includes raw materials, direct labour, and manufacturing overheads. For a trading business, COGS is purchase price + freight. For a service business, COGS is direct staff cost and subcontractor cost.
Gross Margin in ERPNext
The Gross Profit report in ERPNext (Selling → Reports → Gross Profit) shows sales value, cost of goods sold (from stock valuation), and gross profit per item and per customer. Use this to identify low-margin products or customers dragging down overall profitability.
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