Gross margin is revenue minus the costs that scale directly with it, as a percentage. It answers the only question that matters before hiring or spending on marketing: does selling one more unit make money after what it costs to deliver that unit? A business with a 70% margin can afford a great deal of acquisition cost; one with a 25% margin cannot, and if it thinks it has 40%, it will spend its way into trouble while the profit and loss says things are fine.
Mistake 1: payment processing above the line
Stripe, PayPal and card fees are usually booked as a bank charge or an operating expense. They are a cost of every sale, two to three percent of revenue, and belong in cost of sales. A SaaS business that thinks it has an 85% margin often has 82% once the fees move.
Mistake 2: shipping and fulfilment in operating expenses
Outbound shipping, packaging, pick-and-pack fees and FBA fulfilment charges scale with orders. Booked as "postage" under operating expenses, they disappear from the margin and a product that loses money on every shipment looks profitable. Move them into cost of sales or a fulfilment line directly beneath it.
Mistake 3: contractor and delivery labour as overhead
For agencies and service businesses, the people who deliver the work are the cost of sales. If the freelancers and delivery staff sit in one payroll line with the sales and admin team, the margin per project is unknown and the "overhead" looks alarming. Split labour by function.
Mistake 4: discounts and refunds netted invisibly, or not at all
Revenue at list price with discounts as an expense, or revenue net with no record of what was given away, both hide the true price. A contra-revenue account for discounts and one for refunds show the gap between list and realised price, which is where pricing decisions come from.
Mistake 5: inventory expensed when bought
A $40,000 stock purchase in March is not a cost of March's sales. Expensing purchases makes margin swing with buying cycles and hides the real product cost. Inventory on the balance sheet, cost of goods sold as items sell, with landed cost (freight in, duties) included in the unit cost.
Mistake 6: forgetting the costs that come later
Returns, warranty, chargebacks, credit card disputes and bad debt arrive weeks after the sale. A margin measured on the day of sale ignores them. An allowance based on the trailing rate, booked monthly, keeps the margin honest.
Mistake 7: one blended number
A business with a 60% margin product and a 20% margin product has a blended 40% and no idea which one to push. Margin by product line, channel or service type, from the chart of accounts or from tracking categories, is the report that changes behaviour. A common discovery is that the highest-revenue line has the lowest margin and the most support cost.
What the right number is worth
With a true margin, customer acquisition cost has a ceiling that can be defended; pricing changes can be modelled; the break-even revenue is known; and a lender's or investor's first question has an answer that survives their own analysis. Without it, every decision about growth is a guess dressed as a plan.
The check: take last month's revenue and subtract product cost, payment fees, shipping or fulfilment, and direct delivery labour. Divide by revenue. If the result is more than five points below what you believed, the profit and loss is arranged wrongly, and the fix is a Tuesday afternoon with the chart of accounts.