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Manufacturing KPI Dictionary
Gross Margin: definition, formula and manufacturing interpretation
Understand gross margin and how to use it in manufacturing analysis.
Gross Margin
Gross Margin
Formula: (Revenue − COGS) ÷ Revenue
Use the KPI with product, plant, customer, supplier and period context where appropriate. Connect changes to operational and financial drivers.
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Practical interpretation and manufacturing use
Gross margin shows how much revenue remains after the cost of goods sold. In manufacturing, it can be influenced by price, product mix, material costs, labor, yield, scrap, freight and production efficiency.
Formula
Gross Margin = (Revenue − Cost of Goods Sold) ÷ Revenue × 100
How to use this KPI
- Analyze gross margin by product, customer, order or site where appropriate.
- Separate price and mix changes from material, labor, freight and production cost changes.
- Track recurring margin movement against operational drivers rather than reviewing the percentage alone.