Gross Margin GM, Gross Profit Margin
The share of each revenue dollar left after the direct cost of producing what was sold.
The fork, why two teams get different numbers
The fight is over what belongs in Cost of Goods Sold. Does COGS include
depreciation of production equipment, inbound/outbound shipping, warehouse
labor, payment-processing fees, customer-support salaries, and, for SaaS, cloud-hosting spend and the SBC of the infrastructure team? There is no single
GAAP-mandated COGS composition, so one SaaS company reporting 82% gross margin
and another reporting 68% may run identical economics, differing only in
whether hosting, support, and amortized capitalized software sit above or
below the gross-profit line.
The trap
Gross margin is only comparable when COGS composition matches.
- The full trap, worked on a real export
- Every formula variant, spelled out
- The reconciliation anchor, what to tie it to and when to refuse
Reference: FASB ASC 705 (Cost of Sales) · FASB ASC 330 (Inventory) · SEC Regulation S-X Rule 5-03