Gross Margin
Also known as: Gross Profit Margin, GM
Definition
Gross margin measures revenue after direct cost of goods sold or delivery costs. For software and tech-enabled services firms, it depends on hosting, support, implementation labor, third-party resale, services utilization, customer mix, and pricing discipline.
Gross margin is where business model truth shows up. A company can grow quickly while selling work that consumes delivery capacity faster than revenue expands.
For services-heavy technology firms, the gross-margin question is whether the company is selling a scalable operating model or custom labor under a software multiple story.
Related terms
- Contract Value — The dollar value of a customer agreement, usually measured as ACV, TCV, or ARR depending on contract term and revenue model.
- Gross Revenue Retention (GRR) — Revenue retained from existing customers before expansion. GRR shows how much revenue survives without upsell.
- Margin Expansion — Improvement in EBITDA, gross margin, or contribution margin through pricing, mix, cost structure, delivery efficiency, or operating leverage.
Where this gets applied
- Unit Economics — CAC payback, NRR, gross margin by segment, cohort analysis, paid-on-bookings vs. paid-on-cash.
- Financial Infrastructure — ARR waterfalls, deferred-revenue rules, board-pack standardization, FP&A architecture.
- Process Documentation — Sales process, customer success playbooks, technical runbooks, financial close calendars, hiring rubrics.