Gross Margin
Gross Margin refers to the percentage of revenue left after deducting the Cost of Goods Sold (COGS). It measures how efficiently a business produces and sells its products.
In Filipino MSME terms: ito yung “tubong natitira pagkatapos ibawas ang puhunan.” Mas mataas na gross margin = mas malaki ang kinikita sa bawat produkto o serbisyo.
Gross margin is a key indicator of pricing strength and profitability.
Why Gross Margin Matters
For Filipino MSMEs, gross margin is important because it:
- Shows true product profitability
- Helps set the right selling price
- Protects the business during inflation
- Guides inventory and menu decisions
- Supports long-term financial planning
Gross margin helps owners understand which products are worth keeping or improving.
Gross Margin Formula
Gross Margin = (Gross Profit ÷ Revenue) × 100
Where:
- Gross Profit = Revenue − COGS
Gross Margin Example
Example 1 (Carinderia)
Revenue per serving: ₱90
COGS (ingredients): ₱30
Gross Profit: ₱60
Gross Margin = (60 ÷ 90) × 100 = 67%
Example 2 (Retail Store)
Revenue: ₱500
COGS: ₱350
Gross Profit: ₱150
Gross Margin = 30%
Example 3 (Online Seller)
Revenue: ₱1,200
COGS: ₱800
Gross Profit: ₱400
Gross Margin = 33%
Gross Margin vs. Markup
| Gross Margin | Markup |
|---|---|
| Based on selling price | Based on cost |
| Margin = Profit ÷ Selling Price | Markup = Profit ÷ Cost |
| Used for profitability analysis | Used for pricing decisions |
Many MSMEs confuse the two — but they produce different percentages.
Ideal Gross Margin for MSMEs
- Food businesses: 60%–70%
- Retail: 20%–40%
- Online selling: 25%–45%
- Services: 70%–90%
Margins vary depending on industry and competition.
Example / Context
Example 1 (Menu Engineering):
You remove low-margin dishes and promote high-margin ones.
Example 2 (Retail Pricing):
You adjust prices when supplier costs increase to maintain margin.
Example 3 (Online Seller):
You compute margin to decide if free shipping is sustainable.
Example 4 (Bakery):
You track margin per bread type to identify best-sellers.
Related Terms
FAQs
1. Is gross margin the same as gross profit?
No. Gross profit is an amount; gross margin is a percentage.
2. What affects gross margin?
Ingredient cost, supplier pricing, wastage, and selling price.
3. Is a higher gross margin always better?
Generally yes, but it must still be competitive and realistic for your market.
4. How often should MSMEs check gross margin?
Monthly for most businesses; weekly for food and retail.