Glossary
What is Gross Margin?
Definition
Gross margin is the percentage of revenue remaining after subtracting direct costs of delivering the service or product — the cost of goods sold (COGS) for e-commerce, direct materials + subcontracted work for services. Calculated as (Revenue − Direct Costs) ÷ Revenue.
It's different from net margin, which further subtracts shared overhead and fixed costs. Gross margin isolates the pure efficiency of delivery.
Why it matters
- A freelance consulting engagement typically has 95%+ gross margin (time is the only cost); an Etsy shop might have 40%. Comparing projects by gross margin reveals which are structurally profitable vs which just generate revenue.
- Declining gross margin is an early warning. If your rate stayed flat but materials costs rose, gross margin drops — and you need to raise rates or change suppliers before it affects net profit visibly.
- For businesses with inventory, gross margin is the standard industry comparison metric; net margin varies too much by overhead structure.
Best practices for Gross Margin
Calculate per project, not just in total
Total gross margin hides project-level variance. Per-project calculation is what drives pricing and project-mix decisions.
Include all direct costs
Subcontractors, materials, platform fees, tools bought specifically for this project. Skipping platform fees is the most common error in DIY gross margin math.
Track it monthly for trending
Month-over-month gross margin catches creeping direct-cost inflation. Annual-only tracking is too late.
FAQ
What's the difference between gross margin and gross profit?
Gross profit is the dollar amount (revenue − direct costs). Gross margin is that dollar amount expressed as a percentage of revenue. Same underlying math.
Is gross margin the same as markup?
No. Markup is the percentage added to cost to arrive at selling price. Gross margin is the percentage of selling price that's profit. $100 item at $40 cost is 150% markup and 60% gross margin.
Ready to see per-project margin?
Hustlay displays gross margin + net margin on every project card, updated in real time as revenue and costs roll in.