Gross Margin Analysis

The gross margin of a product is measured by subtracting the cost of goods sold from the selling price. Cost of goods sold includes all costs associated with producing the products or services sold by a company. Gross margin percentage is obtained by dividing gross margin by sales revenue. Many companies offer multiple products, so understanding overall gross margin is often an exercise in understanding how various unit sales, price points and costs for each product or service contribute to the overall business.

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