Gross Margin
Definition
Revenue minus cost of goods sold, expressed as a percentage of revenue. Gross margin percentage equals gross profit divided by revenue. Gross margin is a measure of the direct profitability of the company's product before operating expenses. Gross margin is calculated after cost of goods sold and before any operating expense. Gross margin and contribution margin are not equivalent and must not be reported interchangeably.
Common Misapplication
The most common misapplication is calculating gross margin after deducting costs that are operating expenses under the company's documented cost classification policy. Inflated gross margin resulting from operating expense misclassification overstates the direct unit economics of the business and is a common finding in investor diligence.
FFI Standard Reference
This term is defined and applied in Book 1, Section 1.1: The Three-Statement Standard.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Gross Margin. https://ffistandard.org/glossary/gross-margin/. 2026.