Gross Margin in Depth
Gross margin shows how much of each sales dollar is left after paying for the product itself. It is one of the clearest clues to a company’s pricing power. Here is how to calculate it, what counts as high or low and why it varies so much by industry.
The formula
Gross profit is revenue minus the cost of goods sold, the direct cost of making or buying what the company sells. Gross margin is gross profit divided by revenue. If a company sells $100 of goods that cost $40 to make, gross profit is $60 and gross margin is 60%.
Everything else the company spends, like marketing, research, salaries at headquarters, interest and taxes, has to come out of that gross profit.
From revenue down to profit: each margin keeps a smaller share of every sales dollar.
Real gross margins
| Company | Business | Gross margin |
|---|---|---|
| Visa (V) | Payment network | About 97.7% |
| Adobe (ADBE) | Software | About 89.3% |
| NVIDIA (NVDA) | Chip designer | About 74.7% |
| Coca-Cola (KO) | Beverages | About 61.9% |
| Apple (AAPL) | Devices and services | About 48.7% |
| Walmart (WMT) | Retail | About 24.8% |
| Costco (COST) | Warehouse retail | About 12.9% |
In our data as of Sept. 17, 2026.
What a high gross margin tells you
A high gross margin usually means customers pay far more than the product costs to deliver. That can come from a strong brand, a patent, network effects or software that costs almost nothing to copy. It also gives a company room to spend on research and growth.
A low gross margin is not automatically bad. Costco runs on thin margins on purpose, keeping prices low and earning much of its profit from membership fees. The key is whether the margin fits the business model and whether it is stable.
Watch the trend
- Rising gross margin: pricing power, a better product mix or lower input costs.
- Falling gross margin: price competition, rising costs or discounting to move inventory.
- Compare the same quarter a year earlier to avoid seasonal effects.
Key takeaways
- Gross margin = (revenue − cost of goods sold) ÷ revenue.
- High gross margins often signal pricing power.
- Margins vary hugely by industry, so compare peers.
- The trend in gross margin can reveal competition or pricing power.