A 75% gross margin is considered excellent, particularly for Software as a Service (SaaS) and digital products, as it indicates high profitability and efficient cost management. While average margins vary by industry—often 40-80% for e-commerce or ~70-75% for SaaS—a 75% margin suggests strong pricing power and low production costs relative to revenue.
For instance, a gross margin of 75 percent means you retain 75 cents from every dollar of revenue, while 25 cents goes toward production costs. This metric is especially important for assessing operational efficiency and understanding the financial health of your business when reviewing your income statement.
For gross profit margin benchmark, everything between 60-80% is good for small businesses. That said, "good" isn't one-size-fits-all. Your ideal margin depends on what you sell, how you fulfill, and where your money goes.
Generally, a gross profit margin of between 50–70% is good and anything above that is very good. A gross profit margin below 50% is usually not desirable – though lower margins can still be sustainable for businesses with lower operating costs.
An 80% profit margin is exceptionally high and whether it's 'good' depends on the context. An 80% gross profit margin might be achievable for software or digital product businesses with low production costs.
Gross profit margin formula example
Generally, for ecommerce and consumer products businesses selling online, a good gross margin falls between 40 to 80%. This range depends on your manufacturing costs, product type, and business model. At a minimum, aim for a 40% gross margin.
Key Takeaways. Profit doesn't equal liquidity. A company can be profitable while still struggling to pay its bills, usually because of how cash moves through the business.
Here are some general rules of thumb for gross margins:
20%: Healthy for manufacturers, distributors, and other businesses with physical production costs. 30-50%+: Solid margins for most service-based businesses with low overhead and production costs.
It's the 'margin' of difference between the price it costs to make an item and the price it's sold for. You calculate margin by subtracting the cost of goods sold (COGS) from the selling price. Then, you divide the result by the selling price and multiply by 100 to get the profit percentage.
This leaves you with a gross profit margin of 75 per cent, meaning you retain 75 per cent of every dollar that you make after subtracting COGS, but not including operating costs after production.
As the business scales and operational efficiencies come into play, the gross margin can improve significantly. Healthy SaaS businesses typically maintain an industry average gross profit margin of at least 75%.
What is a good gross profit margin ratio? On the face of it, a gross profit margin ratio of 50 to 70% would be considered healthy, and it would be for many types of businesses, like retailers, restaurants, manufacturers and other producers of goods.
The fundamental markup formula is straightforward:
An LLC can technically go without making a profit for years, even 5+, as long as you have capital to cover expenses and show a genuine intent to become profitable, but the IRS may reclassify it as a hobby after two or three consecutive years of losses, blocking you from deducting losses and expenses. To avoid this, you must actively demonstrate a profit motive through a solid business plan, good records, and actions showing you're trying to make money, not just have fun.
Signs a business is failing
For example, a business with an annual revenue of $200,000 and a valuation multiple of 2.5 would have a value of $500,000. However, the accuracy of a revenue-based valuation relies heavily on selecting the right multiple for your business.
High-end items (e.g., watches, cars, yachts) can have valuations manipulated through fictitious invoices or staged private sales. Criminals artificially raise or lower reported prices, disguising illicit proceeds as legitimate gains or concealing true wealth.
That gives you a gross margin of 70%, which means you're earning $0.70 for each dollar of revenue you generate. Of course, this example only shows your overall gross margin. You can (and should) calculate gross margins for different revenue streams and professional services to assess their profitability.
“If your gross margin is negative, it's a big red flag for an entrepreneur,” Beniston says. If you're not able to create a positive gross margin, it means you're spending more money than you're earning by selling that good. And that would put into question your business model.
The average revenue for small businesses with no employees is $47,794, based on the 27.2 million such businesses that achieved $1.3 trillion in revenue in 2020. The average monthly revenue across all small businesses was $531,900 in March 2025, a YoY decrease of $161,000.