# What is Gross Margin?

What is Gross Margin? (Sale price - COGS) / sale price × 100. The basis for every pricing and advertising decision.

## How it works in practice

Gross margin sets the 'advertising ceiling.' A 30% margin on a $55 AOV equals $16.50 gross profit. A CPA above $16.50 means a loss.

## Related metrics

- COGS — the factor that lowers margin
- ROAS Break-Even — determined by margin
- CPA Break-Even — margin × AOV = maximum CPA
- Pricing Strategy — margin is the result

## Common misconception

'A 50% margin means a good business.' If advertising is 40%, salaries 12%, and rent 8% — that's 60% in expenses, meaning a 50% margin still results in a loss.

## How to fix it

Low gross margin? (1) lower COGS, (2) review pricing, (3) mix — are low-margin products selling more? (4) digital products carry an 80%+ margin.

## Real-world example

A fitness store: 28% margin. Bundling products with a digital guide raised margin to 41%. They pushed the bundle in ads.

## Where to start

Calculate gross margin by product today. 20% of products are subsidizing the other 80%.

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Category: Finance · From the [Jimmy OS KPI Glossary](https://jimmy-os.com/glossary/kpi.md) · Source page: https://jimmy-os.com/glossary/kpi/gross-margin