Gross margin
also: gross profit margin · GM% · margin vs markup
Revenue minus cost of goods sold, as a percentage of revenue; it shows how much each sale leaves to pay for engineering, marketing, overhead and profit.
Gross margin = (revenue − COGS) ÷ revenue. Sell a unit for 200 with a COGS of 120 and the gross margin is 40%. Margin is not markup: a 100% markup over cost is a 50% margin.
Hardware businesses typically run lower gross margins than software, and those margins must also absorb inventory risk, warranty and returns. When you sell through distributors and retailers, your gross margin is calculated on the wholesale price you receive, not the retail price the customer pays.
Where it bites: early production runs usually have worse margins than the steady-state plan because of low volumes, yield losses and expedited freight, so plan cash accordingly.
Founder takeaway
Calculate gross margin on the price you actually receive in each channel, and plan for lower margins on early runs.
engineer review pending