Is gross margin the same as markup?

No. Gross margin includes every cost of revenue — hosting, support, payment processing, third-party licences — not only the cost of goods for a physical product.

Where does operating margin fit?

Operating margin sits between them: operating income, after operating expenses but before interest and tax, over revenue.

Gross margin vs net margin

Gross margin is revenue less only the cost of delivering it, as a share of revenue; net margin is what is left after every cost — operating expenses, interest and tax — as a share of revenue.

Each, defined

Gross margin

Gross margin is a profitability metric, calculated as (Revenue − COGS) ÷ Revenue. Requires a COGS classification; omit the metric if there isn't one.

Formula: (Revenue − COGS) ÷ Revenue

Gross margin in the glossary

Net margin

Net margin is a profitability metric, calculated as Net income ÷ Revenue.

Formula: Net income ÷ Revenue

Net margin in the glossary

Side by side

Gross margin and Net margin compared
	Gross margin	Net margin
Numerator	Revenue − cost of revenue	Net income
Costs deducted	Cost of revenue only	All costs, interest and tax
Tells you	Unit economics of the product	Profitability of the company
Moved by	Pricing, hosting, support costs	Everything, including headcount

The same P&L, read at two lines

Northwind's September 2026: revenue of $31,500 less $17,000 cost of revenue leaves a 46% gross margin. Operating expenses of $11,950 take it to a 8.1% net margin. (Northwind Traders, Inc., September 2026, accrual basis, USD.)

The same P&L, read at two lines
Line	Amount	Share of revenue
Revenue	31,500.00	100%
Cost of revenue	(17,000.00)	-54%
Gross profit	14,500.00	46%
Operating expenses	(11,950.00)	-37.9%
Net income	2,550.00	8.1%

How they relate

Gross margin measures the product: how much of each dollar of revenue survives the direct cost of delivering it. Net margin measures the company: how much survives everything.

A software company with an 80% gross margin and a loss is not unusual — the gap is sales, marketing and R&D spent on growth. A falling gross margin is a different and usually worse signal, because it says each sale is earning less.

Questions

Is gross margin the same as markup?: No. Gross margin includes every cost of revenue — hosting, support, payment processing, third-party licences — not only the cost of goods for a physical product.
Where does operating margin fit?: Operating margin sits between them: operating income, after operating expenses but before interest and tax, over revenue.

See it computed

Worked through: the calculators, the journal entries and the tools that use these terms.

Definitions are the glossary’s, generated from the same documents. Figures in the examples are computed by tested functions, not typed. General information for US companies under US GAAP, not accounting or tax advice.