What Are Gross Margins?

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What are grossmargins?

First off, gross profit is sales minus cost of sales (the amount the company had to pay to obtain or build the product it sells).

Gross margin is the percent of sales the company retained after accounting for the cost of those sales. It measures how bang the company is getting for its buck.

It's like when you go to a big coffee chain and get a nice coffee for, say, 6 bucks. And let's say that coffee tastes so good, you're happy to pay 6 bucks for it. You're getting some bang for your buck. You're getting some degree of marginal benefit (the reward of the good taste minus the cost of the coffee).

But what if you could go to the deli near where you live, and nobody knows, but this deli makes killer coffee. And it's only 4 bucks. You're getting better coffee for a lower price. That's more bang for your buck. In technical terms, your benefit was at a wider margin that it was at the big coffee chain (better taste minus fewer dollars).

A similar idea applies for companies' grossmargins.

Now see the video above to really learn it.

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