What's my net margin?

After all expenses, your net margin tells you how much of every dollar you actually keep. Bottomline tracks this automatically.

What are my cost of goods sold?

Bottomline pulls your COGS directly from your accounting data and shows the trend so you can see if direct costs are creeping up.

What helped profit and what hurt it?

Bottomline breaks down the specific line items that drove your profit up or down compared to the prior month.

How much revenue did I collect?

Bottomline shows your invoiced revenue alongside what you actually collected, so you see the gap between paper revenue and real cash.

Are my expenses in line with my revenue?

Bottomline benchmarks your expense-to-revenue ratio and flags categories that are growing faster than your top line.

What’s my gross margin?

Gross margin tells you how much money is left after the direct costs of delivering your product or service. It is the first number that reveals whether your pricing works.

6 min read

The short answer

Gross margin= (Revenue - Cost of Goods Sold) / Revenue. Your Profit and Loss report has both numbers. QuickBooks labels the line “Cost of Goods Sold” and Xero calls it “Direct Costs” or “Purchases.” Below, we'll walk you through the exact steps.

Why gross margin is the first profitability number to check

You run a landscaping company. Last month you collected $85,000 in revenue. Materials cost you $22,000. Labor for your crews was $28,000. Those are your direct costs: the expenses that only exist because you did the work. Your gross profit is $35,000, and your gross margin is 41%.

That 41% is the pool of money available to cover everything else: your office rent, software, insurance, your own salary, and hopefully some profit. If gross margin drops to 30%, that pool shrinks from $35K to $25.5K, and suddenly there is not enough to cover your overhead.

Gross margin problems are pricing problems or efficiency problems. If it is shrinking, either you are charging too little, your direct costs are rising, or both. Net margin can decline for a dozen reasons. Gross margin narrows the diagnosis to the fundamentals of your business model.

What gross margin measures and what it does not

Gross margin isolates your core economics. Here is what goes into it and what stays out:

Included (COGS): Materials, direct labor, manufacturing costs, shipping on products sold, subcontractor costs directly tied to delivery.
Not included: Rent, utilities, marketing, insurance, administrative salaries, software subscriptions. These are operating expenses and affect your net margin, not gross.
Why the distinction matters: If your gross margin is healthy but net margin is thin, the problem is in your overhead. If gross margin itself is thin, the problem is in your pricing or direct costs, and no amount of overhead cutting will fix it.

How to find your gross margin in QuickBooks Online (4 steps)

1
Open the Profit and Loss report
From the left sidebar, click Reports. Search for “Profit and Loss” and open it. Set the date range to the current month.
2
Find Total Income and Cost of Goods Sold
Total Incomeis at the top. Below it, you'll see the Cost of Goods Sold section. QuickBooks may also show a Gross Profit subtotal line, which is Total Income minus COGS already calculated for you.
3
Calculate gross margin percentage
Divide Gross Profit by Total Income, then multiply by 100. Example: $35,000 gross profit / $85,000 revenue = 41.2% gross margin.
4
Compare to last month
Change the date range to last month and run again. Or use the “Previous period” comparison option to see both side by side. A 2-3 point swing month to month is worth investigating.

Total time: about 3 minutes. QuickBooks usually shows the Gross Profit subtotal, so you only need to divide by revenue to get the percentage.

How to find your gross margin in Xero (4 steps)

1
Go to Accounting → Reports → Profit and Loss
Select the current month as your date range. Click Update.
2
Find Total Revenue and Direct Costs
Xero labels the COGS section as “Less Direct Costs” or “Purchases.” Below it, Xero shows a Gross Profit subtotal.
3
Calculate the margin percentage
Divide Gross Profit by Total Revenue. Multiply by 100. Example: Gross Profit of $35K / Revenue of $85K = 41.2%.
4
Add a comparison period
In the report settings, select “Compare with: Previous Period” to see this month and last month in adjacent columns. Look at whether the gross profit line is growing in proportion to revenue.

Total time: about 3 minutes. Xero calculates Gross Profit for you. The comparison feature makes it easy to spot month-over-month changes without running a second report.

What it takes to track gross margin every month

Checking your gross margin is one of the quicker exercises, but making it useful requires consistency:

3 minutes per month to pull the P&L and do the division.
A spreadsheetto log margins each month so you can see the 3-6 month trend. A single month's number is less useful than the direction.
Correct COGS categorization. If your bookkeeper is putting direct costs into operating expense categories (or vice versa), your gross margin will be wrong. Most small businesses have at least some misclassification.

Or track your gross margin automatically, every month

Bottomline connects to your QuickBooks or Xero account and calculates your gross margin each month. It shows the current number, the trend, and flags if margin moves more than 2 points:

Gross margin

Revenue $85,400/COGS $50,200/Gross margin 41.2%

Up 1.8 points from last month (39.4%)

From a real Bottomline report. Margin data comes directly from your accounting software.

Beyond the margin calculation, Bottomline also cross-references your COGS line items with vendor spend data so you can see which specific costs drove the change. Instead of just knowing margin went down 3 points, you see that materials costs from one supplier jumped 18%.