Gross margin is the amount remaining after a retailer or manufacturer subtracts the cost of goods sold from the net sales.

Gross margin is important because it shows whether your sales are sufficient to cover your costs.

A good gross margin in one industry is not necessarily good for another.

**Formula to calculate gross margin.**

**Example:**

Suppose a firm’s net sales for the previous year is $2,000,000 and the cost of goods sold was $700,000. Calculate the firm’s gross margin.

Therefore, the gross margin of the firm is $ 1,300,000.