Gross Margin
CRM & RetentionAlso: Gross Profit Margin · Gross Margin Percentage
Quick definition
Gross margin is the percentage of revenue left after subtracting the direct cost of producing or delivering what you sold, known as Cost of Goods Sold (COGS). It shows how much of every sale is available to cover marketing, salaries and profit before other overheads are counted.
There's no universal target. Judge your margin against what it needs to fund, including acquisition spend and a reasonable buffer for returns and refunds.
How it varies across Australia
Gross margin varies enormously by business model. Software and services businesses typically sit well above physical product businesses, and within ecommerce, margin swings sharply between categories like apparel and low-margin commoditised goods. There is no single healthy number, only a healthy number for your model.
Compare margin-sensitive metrics across Australian industries →What it actually means
Gross margin answers one question honestly: how much of each sale is actually yours to spend. Revenue tells you what came in the door. Gross margin tells you what's left after you've paid for the thing you sold, whether that's inventory, hosting costs or delivery staff.
This matters more to marketers than it gets credit for. Every acquisition metric, from Cost Per Acquisition (CPA) to Customer Acquisition Cost (CAC), only means something once you compare it against margin, not revenue. A business with a low Average Order Value (AOV) but high margin can often afford a higher CAC than a business with a high AOV and thin margin.
Gross margin also sets the ceiling for what Lifetime Value (LTV) can actually deliver. A customer who returns five times but buys on razor-thin margin might be worth less than a customer who buys once at high margin. Retention rate and churn rate tell you if customers stay. Gross margin tells you if staying is worth anything.
Marketers who ignore gross margin end up optimising for the wrong outcome, chasing conversion rate improvements on products that barely turn a profit.
A CAC that looks fine against revenue can be catastrophic against gross margin. Margin is the number your acquisition spend actually has to beat.
How to calculate it
Gross Margin = (Revenue minus Cost of Goods Sold) ÷ Revenue x 100
Worked example. Your business generated $100,000 in revenue last quarter. The direct cost of producing and delivering those goods was $65,000. Gross Margin = ($100,000 - $65,000) ÷ $100,000 = 35%. Of every dollar sold, 35 cents is available to cover marketing, wages and profit.
The Australian context
Australian businesses need to be careful about where GST sits in this calculation. Revenue and COGS should both be reported ex-GST, otherwise the tax component inflates both sides and distorts the margin figure, sometimes in ways that hide a real problem.
Freight is another Australian-specific trap. Shipping across a large, low-density country costs more than in comparable overseas markets, and it often gets buried in COGS unevenly across product lines. A business selling nationally can show a healthy blended margin while individual regions or product categories are quietly loss-making once true delivery cost is allocated properly.
Where people get this wrong
Related terms
Common questions
What's considered a good gross margin?
It depends entirely on the business model. Service and software businesses typically run far higher gross margins than physical product businesses. Compare your margin against your own historical trend and category norms, not against a generic benchmark.
How is gross margin different from markup?
Markup is calculated on cost, gross margin is calculated on revenue. A 50% markup on a product costing $100 gives a sale price of $150, but that only produces a 33% gross margin. The two numbers use different denominators and are easy to mix up.
Should marketing teams track gross margin directly?
Yes, at least at a category or channel level. Without margin visibility, a marketing team can hit revenue and Return On Ad Spend (ROAS) targets while unknowingly acquiring customers who cost more to serve than they generate in profit.
Does gross margin include marketing spend?
No. Marketing spend sits below the gross margin line, typically counted as an operating expense. Gross margin only accounts for the direct cost of producing or delivering the product or service that was sold.
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About New Rebellion
New Rebellion is a marketing intelligence consultancy. We build tools, score Australian businesses on how their marketing actually performs, and publish Debrief every day. This dictionary is part of how we work in the open.
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