Frequently Asked Questions(FAQ)

What does 20% gross margin mean?

Imagine a candle that costs $10. A gross margin of 20% on a $10 candle means that the cost of producing that candle is 80% of the selling price. You can work backward to get at the product cost too. Use this formula:

Cost = Selling price x (1 - Gross margin percentage)

So, for a $10 product with a 20% gross margin, the cost would be:

Cost = $10 x (1 - 0.20) = $8

Is gross margin the same as gross profit?

Gross margin is a company’s gross profit divided by its sales. It represents the amount earned in profit per dollar in sales. Gross profit, on the other hand, is the amount of money remaining after a company’s costs are deducted from its sales.

What businesses have the highest gross margin?

According to IBIS World, the ten industries with the highest gross margin in the U.S. include:

  • Land leasing
  • Commercial leasing
  • Security software publishing
  • Regional banking
  • Private equity, hedge funds, and investments
  • Storage and warehouse leasing
  • Gas pipeline transportation
  • Refined petroleum pipeline transportation
  • Cigarette and tobacco manufacturing
  • Commercial banking

About the Authors

Ann Schreiber

Written by: Ann Schreiber

Seasoned Copywriter & Content Marketer

Ann has been a marketer and a content writer for over 20 years. She worked for financial institutions such as FICO, Experian, and BlueChip Financial as a director of content and brand marketing.

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