What you keep of the price.

Gross margin is the share of the selling price you keep after the cost of goods — the slice that has to pay for everything else.

Margin, not markup

Merchants quote markup, accountants quote margin, and the two are not the same number: markup divides by cost, margin divides by price, so a 60% markup is only a 37.5% margin. A $20 product marked up 60% sells for $32, and $12 kept out of $32 is a much thinner slice than the markup suggests. What you count as cost matters as much as the arithmetic — landed product cost, inbound freight, packaging — see COGS for where to draw the line. And gross margin is still a flattering lens. Subtract the variable costs of the sale itself — shipping, payment fees, the free gift — and you get contribution margin, the sharper number that tells you what one more order actually earns.

Why every other metric depends on it

Gross margin sets the ceiling on everything downstream. Your breakeven ROAS is simply 1 ÷ margin: at a 60% margin, ads pay for themselves at 1.7× return; at 30%, you need 3.3× before the first dollar of profit appears. Discounting obeys the same arithmetic, only crueler — a 10% discount does not cost you 10% of profit, it comes straight out of margin, so at a 30% margin it surrenders a third of what you keep. That is why the quiet levers for AOV — bundles, free-shipping thresholds — beat blanket discounts. When margin is thin, every other number has to be heroic; when it is fat, ordinary numbers make money.