Gross Margin
(Revenue − COGS) / RevenueGross margin measures the percentage of revenue remaining after direct costs. It indicates pricing power and production efficiency.
How it's used in a deal
Compare against industry benchmarks. Gross margin below 20% may leave limited room for debt service after operating expenses.
Worked example
Precision Auto Service, FY 2024:
Gross Margin = 47.6%
Numbers from our sample deal report — an anonymized real-world analysis.
Important caveat
Gross margin definitions vary by industry. Ensure COGS includes only direct costs and not allocated overhead.
Frequently asked questions
What gross margin should I look for?
It's industry-specific: service businesses often run 50–70%, distribution 15–30%, restaurants 60–70% on food but thin at the bottom line. What matters most in diligence is the trend — a compressing margin means rising costs aren't being passed through, which erodes debt service capacity.
Why did the margin change between years?
Common causes: supplier price increases, mix shift between labor and parts revenue, misclassified expenses moving between COGS and OpEx, or one-time inventory write-offs. Margin swings without explanation are a top seller question.
See Gross Margin computed on a real deal
Upload the broker package and get Gross Margin — plus a risk score, valuation range, and lender-ready report — in minutes.
Related metrics
Educational content from a decision-support tool — not a CPA audit, review, or assurance engagement, and not tax, legal, or investment advice.