Is net sales less the cost of goods sold (COGS). In other words, it's the amount of money a company retains after incurring the direct costs associated with producing the goods it sells and the services it provides. The higher the gross margin, the more capital a company retains, which it can then use to pay other costs or satisfy debt obligations. Companies use gross margin, gross profit, and gross profit margin to measure how their production costs relate to their revenues. For example, if a company's gross margin is falling, it may strive to slash labor costs or source cheaper suppliers of materials.
Alternatively, it may decide to increase prices, as a revenue-increasing measure. Gross profit margins can also be used to measure company efficiency or to compare two companies of different market capitalizations.