Gross Margin
Also known as: Gross Profit Margin, GP Margin
The percentage of revenue remaining after subtracting the direct costs of delivering the product or service.
Full Definition
Gross margin = (Revenue - COGS) / Revenue. For SaMD and digital health companies, gross margins are typically 70–90% because the marginal cost of delivering software to an additional customer is low. For medical devices, gross margins depend heavily on manufacturing costs and typically range from 40–75%. For diagnostics, gross margins vary widely based on reagent costs and instrument amortization. Gross margin is a primary driver of Investor Economics and a key metric for investors evaluating business model quality.
Example
A SaMD company with $3M ARR and $450K in hosting, support, and implementation COGS has a gross margin of 85%. A comparable medical device company with $3M revenue and $1.2M COGS has a 60% gross margin — reflecting the higher physical production costs.