Definition:
Gross margin represents the percentage of revenue remaining after subtracting the cost of goods sold (COGS). It indicates how much profit a merchant retains from each sale before accounting for other expenses.
Why It Matters:
- Helps merchants evaluate the profitability of their pricing strategy.
- Ensures pricing decisions protect business margins.
- Serves as a key constraint in automated pricing optimization.
Example:
A merchant sells a product for $100 and the cost of goods is $60. The gross margin is 40%, meaning the merchant keeps $40 before other business costs.