Gross Margin

Gross margin = (Revenue − Cost of Goods Sold) ÷ Revenue × 100%. It measures how efficiently a company delivers its product — what percentage of each rupee of revenue remains after paying for the direct costs of that revenue (hosting, materials, delivery, direct labour).

Gross margin is the foundation of all profitability analysis. High gross margin businesses (SaaS: 70–85%) can fund sales, marketing, and R&D from revenue. Low gross margin businesses (grocery delivery: 10–20%) must operate at enormous scale to generate meaningful profits.

Investors use gross margin as a proxy for business model quality. A SaaS company with 50% gross margin has structural problems. A logistics company with 30% gross margin might be exceptional for its category.

Indian SaaS companies typically achieve 65–80% gross margins — competitive with global benchmarks — due to lower hosting and support costs. Indian D2C brands have wide gross margin variation: direct-to-consumer margins of 55–70% are common for branded goods, but marketplace-heavy sales reduce effective gross margin to 30–45% after platform fees and returns.

A critical India mistake: many Indian startups include only COGS in their gross margin calculation but omit customer success and onboarding costs (which are COGS for SaaS). This inflates reported gross margin and creates uncomfortable conversations in due diligence.