Gross margin is your gross profit expressed as a percentage of revenue. It shows what percentage of each sales dollar remains after covering direct costs.
Gross margin percentage is calculated as (Revenue minus COGS) divided by Revenue, multiplied by 100. It is one of the most important metrics for monitoring business health and comparing performance across periods or against industry benchmarks. A gross margin of 60% means that for every $1 of revenue, you keep 60 cents after paying for direct costs. Tracking gross margin over time reveals trends in pricing power, cost management and product mix. If your gross margin is declining, you need to investigate whether costs are rising, prices are falling or your product mix is shifting toward lower-margin items. Gross margin analysis by product line, customer segment or location can reveal which parts of your business are most profitable. SortBooks provides real-time gross margin calculations and trend analysis through its AI CFO feature, helping you make informed pricing and product decisions.
SortBooks helps with the bookkeeping behind gross margin by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing gross margin by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
Gross profit is your revenue minus the cost of goods sold (COGS). It shows how much money remains from sales after covering direct production or purchasing costs.
COGS represents the direct costs of producing or purchasing the goods your business sells. It includes raw materials, direct labour and manufacturing overhead but not selling or administrative expenses.
Net margin is your net profit expressed as a percentage of revenue. It shows what percentage of each sales dollar becomes actual profit after all expenses are paid.
Profitability measures your business's ability to generate profit from its operations. Key metrics include gross margin, operating margin, net margin and return on equity.
Contribution margin is the amount remaining from sales revenue after deducting variable costs. It shows how much each sale contributes toward covering fixed costs and generating profit.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.