Your gross margin measures your profit.
The higher your gross margin, the higher your profit.
For example:
- Your customer pays you $100,000.
- It costs you $30,000 to create the product (or deliver the service). This is called your Cost of Goods Sold (COGS).
- Therefore, your gross margin is 70%.
Here’s the equation:
($100,000 – $30,000) / $100,000 = 70%
You can increase your gross margin by:
- Reducing your costs of goods sold (COGS)
- Selling more high-margin products (like eBooks and online courses) vs low-margin products (like furniture or services)
