# What is gross margin?

> Gross margin is the share of each sale you keep after the cost of the product. Formula, a rupee example and how it sets how much you can spend on ads.
- **Author**: Marxx
- **Published**: 2026-11-22
- **Category**: Metrics
- **URL**: https://marxx.ai/library-glossary/gross-margin

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Gross margin is the share of each sale you keep after paying for the product itself. A 60% gross margin means you keep INR 60 of every INR 100 sale, before ads, shipping and salaries.

## The formula

Gross margin % = (revenue − cost of goods sold) / revenue x 100

Cost of goods sold (COGS) is what the items you sold cost you to make or buy. Decide once what goes into it, such as packaging, and keep that rule every month.

## A worked example

Say you sell a face serum for INR 1,000. It costs INR 350 to make and INR 50 to pack.

- COGS = 350 + 50 = INR 400
- Gross profit = 1,000 − 400 = INR 600
- Gross margin = 600 / 1,000 x 100 = **60%**

## Why ad teams care

Gross margin sets how much you can pay to win a sale. At a 60% margin, each INR 1,000 sale leaves INR 600 to pay for ads and everything else. Your break-even ROAS is 1 / gross margin.

| Gross margin | Break-even ROAS |
|---|---|
| 60% | 1.67 |
| 40% | 2.50 |
| 25% | 4.00 |

A ROAS of 3 makes money at a 60% margin. It loses money at 25%. See [break-even ROAS](/glossary/break-even-roas) and the free [ROAS calculator](/roas-calculator).

## Margin is not markup

Markup divides profit by cost. Margin divides profit by price. The same serum has a 150% markup (600 / 400) and a 60% margin. Mix them up and your break-even ROAS comes out wrong.

## What gross margin leaves out

It ignores shipping, payment fees, returns and discounts. [Contribution margin](/glossary/contribution-margin) takes those out, so it is safer for ad decisions.

## FAQ

### Is gross margin the same as profit?

No. It is profit before ads, rent, salaries and tax. Net profit is what remains after those.

### What is a good gross margin?

It depends on your category, so there is no single number. Work out the minimum your ads need with break-even ROAS, then watch your own margin over time.

### Which margin should I use for ROAS targets?

Start with gross margin. Switch to contribution margin once you know your shipping and return costs.

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