Gross margin percentage is gross profit divided by net revenue. Gross profit is net revenue minus cost of goods sold (COGS). The percentage shows how much revenue remains after those costs; it does not establish net profit or cash available to spend.
For a buyer, gross margin helps evaluate how purchase prices, acquisition costs and product mix affect the goods sold. Procurement influences those inputs alongside pricing, production, waste, sales mix and the accounting policy. It does not control the whole result.
Gross margin formula
Gross profit = net revenue − COGS
Gross margin percentage = gross profit / net revenue × 100
Use revenue and COGS for the same period and scope. Net revenue should reflect the applicable returns, allowances and discounts. A zero revenue denominator does not produce a meaningful margin percentage.
The term “gross margin” is sometimes used for gross profit dollars as well as the percentage. Label the unit explicitly when comparing reports.
A worked example
Assume a fictional retailer reports $100,000 net revenue and $60,000 COGS for the same period:
Gross profit = $100,000 − $60,000 = $40,000
Gross margin = $40,000 / $100,000 × 100 = 40%
The $60,000 is the cost assigned to goods sold, not simply every purchase paid for in the period. Goods bought but still in inventory may remain an asset under the applicable policy. Conversely, this period's sales may include goods bought earlier.
IAS 2's inventory summary explains the recognition of inventory carrying amounts as expense when the related goods are sold under IFRS. The business's accounting framework determines the actual treatment, including losses and write-downs.