Gross Margin
Total revenue minus the direct cost of delivering it (technician labor, tools, resold product), as a percentage of total revenue.
Formula
(Total revenue − Cost of goods sold) ÷ Total revenue × 100
Why Track It
Gross margin shows whether pricing covers delivery before overhead is paid. A slide usually traces to underpriced agreements, rising tool costs or a heavier mix of low-margin resale.
How It Is Measured
From the income statement, subtract cost of goods sold from total revenue and divide by total revenue. Cost of goods sold must include front-line technician wages, service and project managers, delivery tools and resold hardware and software. Report blended and by revenue line (managed services, projects, product) so resale does not hide service margin.
Constraints
Blended margin moves with revenue mix, so a big hardware quarter drops it without anything going wrong. Comparisons with peers only hold if cost of goods sold is classified the same way.
Measurement Note
Kaptius cites 50% to 60% gross margin as a healthy industry standard, and Puredome recommends 60% to 70%. The danger line is the bottom of the Kaptius range. Service Leadership stresses including all delivery staff and tools in cost of goods sold; leaving service managers in overhead flatters the number.
Referenced In
Related KPIs
- Adjusted EBITDA MarginEarnings before interest, taxes, depreciation and amortization, adjusted for one-time and owner-specific items, as a percentage of revenue.
- Project Gross MarginThe gross margin earned on project work after labor and direct costs, measured per project and across all projects in a period.
- Managed Services Gross MarginThe gross margin earned on recurring managed services agreements alone, after the labor and tools needed to deliver them.
Glossary and Answers
More in Finance
The recurring revenue base, the margins it earns and how quickly cash comes in. These numbers tell an MSP owner whether the business is priced right and worth what a buyer would pay for it.
- Adjusted EBITDA MarginOwner
- All-In Seat Price (AISP)Owner
- Days Sales Outstanding (DSO)Finance Lead
- Effective Hourly RateFinance Lead
- Managed Services Gross MarginFinance Lead
- Monthly Recurring Revenue (MRR)Owner
- Recurring Revenue as Share of TotalOwner