What is gross margin?
Nicklas Segatz Mortensen · Growth Hacker · Fractional CMO · Meta Ads Nerd · 8 July 2026 · 3 min.
Definition
Gross margin is gross profit as a percentage of revenue — that is, revenue minus cost of goods, divided by revenue. Sell for €100 with €40 in cost of goods, and gross margin is 60%.
Also called: Gross margin, Margin, Gross Margin
Sådan virker det
Dækningsbidrag er omsætning minus alle variable omkostninger. Det er grundtallet bag POAS, break-even ROAS og CLTV — kender du ikke din dækningsgrad, er al budgivning et gæt.
01Why gross margin governs everything
Gross margin is the base number all the profit-based metrics rest on. It determines your break-even ROAS (1 / margin), how much each order contributes, and how aggressively you can bid in the auction. Two brands with the same revenue but different gross margins have wildly different conditions for scaling.
Note that gross margin (after cost of goods) isn't the same as contribution margin after all variable costs. Shipping, fees and returns are only subtracted at the next layers (CM2, CM3) — and they can eat a fair chunk of a handsome gross margin.
02Gross margin as a growth lever
A higher gross margin is one of the most underrated growth moves: it lowers your break-even ROAS and raises the ceiling for what you can bid and still make money. Pricing, an assortment mix weighted toward high-margin products and better purchasing terms all pull in that direction.
Precisely because margin propagates all the way up the economics, it's often a stronger lever than chasing cheaper ads: a margin improvement makes every single order more profitable at once.
Frequently asked questions
What's the difference between gross margin and contribution margin?+
Gross margin is revenue minus cost of goods (as a percentage). Contribution margin goes further and also subtracts shipping, fees and returns. Gross margin is the first layer; contribution margin is closer to the real profit per order.
How does gross margin affect my ROAS?+
Directly: your break-even ROAS is 1 divided by your margin. A higher gross margin lowers break-even and raises the ceiling for what you can bid and still be profitable.
Related terms
Glossary
What is contribution margin?
Contribution margin is revenue minus the variable costs (cost of goods, shipping, fees, returns). It's the amount each order contributes toward covering fixed costs and creating profit.
Read the entry →Glossary
What is net margin?
Net margin is net profit as a percentage of revenue — that is, what's left once both variable and fixed costs, tax and interest are subtracted.
Read the entry →Glossary
What is break-even ROAS?
Break-even ROAS is the ROAS at which contribution margin exactly covers the ad cost — neither loss nor gain. It's calculated as 1 divided by your margin.
Read the entry →Glossary
What is POAS?
POAS (Profit on Ad Spend) is your gross profit divided by ad spend. Where ROAS measures revenue per ad euro, POAS measures what you actually keep — after cost of goods, shipping and fees.
Read the entry →
Nicklas Segatz Mortensen
Growth Hacker · Fractional CMO · Meta Ads Nerd at Oaksmond
Growth hacker and fractional CMO with 10+ years' experience and hundreds of millions in managed ad spend behind him. Background from larger Danish and international scale-ups, and from the agency world.
Meet the team →