Gross Profit is calculated as Total Revenue minus Cost of Goods Sold (COGS). It measures how much profit a company retains from its core selling activity before accounting for overhead, salaries, marketing, R&D, and other operating expenses. Gross Profit Margin (Gross Profit as a percentage of Revenue) is a key indicator of pricing power and operational efficiency.
High gross margins are a hallmark of software and asset-light businesses — SaaS companies, for example, can achieve gross margins of 70–85%. By contrast, hardware, manufacturing, and marketplace businesses typically operate on lower gross margins. In private markets, gross margin is a primary screening metric for identifying capital-efficient, scalable businesses.