Gross margin is gross profit expressed as a percentage of revenue — the share of each sales dollar remaining after covering direct production costs. Industry benchmarks: retail 25–50%, restaurants 60–70% (food cost basis), SaaS 70–85%, manufacturing 25–40%.
Gross margin = (Gross Profit / Revenue) × 100. It measures how efficiently a business converts revenue into profit before overhead. Higher gross margin means more of each dollar is available to cover operating costs, service debt, and generate net income. Lenders use gross margin as a risk filter. A business with a 15% gross margin has little room for error — a 10% revenue decline or input-cost spike could eliminate the margin entirely. A business at 60% gross margin has significant buffer. Alternative lenders (MCAs, non-bank term loans) are especially attuned to gross margin because their products are repaid from revenue, not net income. Benchmarks vary dramatically by industry. Per U.S. Census Bureau Annual Survey of Manufactures and BLS data: software/SaaS 70–85%, healthcare services 40–60%, construction 15–25%, restaurant (food cost basis) 60–70% (though after labor, net restaurant margins are 2–6%), retail trade 25–50%, professional services 50–75%. Always compare gross margin within an industry, not across industries. The U.S. Census Bureau's Annual Survey of Manufactures (https://www.census.gov/programs-surveys/asm.html) provides gross margin data for manufacturing sectors. The BLS Quarterly Census of Employment and Wages (https://www.bls.gov/cew/) and the Census Bureau's Annual Retail Trade Survey (https://www.census.gov/programs-surveys/arts.html) supply sector-level revenue and cost data for retail and service gross margin benchmarking.
Depends entirely on the industry. Service businesses (consulting, software, marketing) typically run 60–80%+. Restaurants and retail run 25–70% depending on the segment. Manufacturing and construction often run 15–35%. The right benchmark is the industry median — not a universal number.
Higher gross margin creates more debt-service capacity relative to revenue. A business at 50% gross margin with $1M revenue has $500K available before overhead to service debt; a 15% margin business has $150K. Lenders for revenue-based products (MCAs, working capital loans) factor gross margin directly into holdback calculations.