Gross margin

Gross margin is the percentage of revenue remaining after the direct costs required to deliver the product or service. It is calculated as revenue minus cost of goods sold, divided by revenue. Direct costs may include hosting, payment processing, physical materials, fulfillment, customer support tied to delivery, or third-party data, depending on the business.

The definition should reflect economic reality rather than whichever accounting treatment produces the highest number. A software company that relies on expensive manual implementation may need to show that labor even if it is recorded elsewhere in the financial statements. Investors use gross margin to understand how much revenue is available to fund product development, sales, and overhead, and whether scale improves or worsens delivery economics. Pitch decks are more useful when they show margin over time and explain major changes. Founders should separate current margin from a long-term target and identify the operational work required to close the gap. Marketplace take rate is revenue, not automatically gross margin.