What is gross margin?
Gross margin is the share of the selling price left after cost of goods. It supports profitability analysis, pricing and purchasing negotiations.
Margin = (selling price − purchase price) / selling price × 100
Why can the effect be large?
A purchase discount lowers cost while the selling price remains unchanged. The saving therefore adds directly to gross profit.
Example
An item sells for 1,000 and costs 700, giving a 30% margin. A 10% purchase discount lowers cost to 630 and raises margin to 37%—an improvement of 7 percentage points.
Points to consider
Check whether freight, customs, rebates and currency effects are included. Also consider volume commitments, contract length and inventory.
Calculate your own scenario
Use the free PurchaseKPI calculator and get the result immediately.
Margin calculator